 Salience perception and dominated choices in contractsMark Schneider, Cary Deck and Patrick DeJarnette Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), 2025, vol. 116, issue C Abstract: We apply salience theory to choices over lotteries with multiple dimensions, such as insurance plans with deductibles and premiums, or monetary and non-monetary rewards. We show that salience theory can explain empirically observed dominated choices with large welfare costs to consumers (the selection of dominated insurance plans with low deductibles, dominated energy plans with a cancellation fee, and dominated consumption bundles with free features). The same framework also addresses a basic empirical puzzle in principal–agent problems: the effectiveness of non-monetary incentives over equivalent-in-value monetary incentives. Our results show that these systematically dominated choices documented in markets emerge from the same basic principles of salience perception that generate dominated choices in the laboratory. Keywords: Salience theory; Dominated choices; Non-monetary outcomes; Risk (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:soceco:v:116:y:2025:i:c:s2214804325000308 DOI: 10.1016/j.socec.2025.102363 Access Statistics for this article Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics) is currently edited by Pablo Brañas Garza More articles in Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics) from Elsevier |
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