Salience theory of choice under risk
By: Pedro Bordalo, Nicola Gennaioli, Andrei Shleifer
Contributors: Gennaioli, Nicola; Shleifer, Andrei; National Bureau of Economic Research
Series: NBER working paper series -- working paper 16387; Working paper series (National Bureau of Economic Research : Online) -- working paper no. 16387.
Publisher: National Bureau of Economic Research
Published: 2010
Place of publication: Cambridge, MA
Language: eng
Format: [electronic resource] /
Description: "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 endogenizing 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"--National Bureau of Economic Research web site.
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