Testing for Salience Effects in Choices Under Risk

Carsten S. Nielsen, Alexander C. Sebald and Peter N. Sørensen
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Carsten S. Nielsen: University of Copenhagen
Alexander C. Sebald: Copenhagen Business School
Peter N. Sørensen: University of Copenhagen

The Review of Economics and Statistics, 2025, vol. 107, issue 3, 741-754

Abstract: We construct and run an experiment to test the most basic choice effect predicted by salience theory. Subjects allocate wealth between a risky and a safe investment. While we vary an apparent payoff ratio to influence salience, treatments have economically equivalent consequences. Most other theories of behavior then predict zero effect. Our experimental findings are strongly consistent with the behavioral implication of a continuous version of salience theory. We provide a novel structural estimate on the strength of salience. In our setting, increasing the relative payoff contrast by 1% is equivalent to an increased odds ratio by about 0.4%.

Date: 2025
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