Salience Theory of Choice Under Risk

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ID: 295834
2012
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Abstract
Abstract We present a theory of choice among lotteries in which the decision maker's attention is drawn to (precisely defined) salient payoffs. This leads the decision maker to a context-dependent representation of lotteries in which true probabilities are replaced by decision weights distorted in favor of salient payoffs. By specifying decision weights as a function of payoffs, our model provides a novel and unified account of many empirical phenomena, including frequent risk-seeking behavior, invariance failures such as the Allais paradox, and preference reversals. It also yields new predictions, including some that distinguish it from prospect theory, which we test.
Reference Key
openalex_W2140619986 Use this key to autocite in the manuscript while using SciMatic Manuscript Manager or Thesis Manager
Authors Pedro Bordalo, Nicola Gennaioli, Andrei Shleifer
Journal the quarterly journal of economics
Year 2012
DOI
10.1093/qje/qjs018
URL
https://academic.oup.com/qje/article-pdf/127/3/1243/30456683/qjs018.pdf
Keywords Keywords not found

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