Violations of first-order stochastic dominance as salience effects

Markus Dertwinkel-Kalt () and Mats Köster

Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), 2015, vol. 59, issue C, 42-46

Abstract: In contradiction to expected utility theory, various studies find that splitting events or attributes into subevents and subattributes can reverse a decision maker’s choices. Most notably, these effects can induce first-order stochastic dominated choices. Such violations of first-order stochastic dominance are framing effects, which expected utility theory, cumulative prospect theory and salience theory of choice under risk cannot account for. However, we propose a version of salience theory which unravels the underlying mechanism triggering such effects and which can explain the impact of event- and attribute-splitting on choices. Hereby, we provide further rationale for the broad validity of the salience mechanism and its strong descriptive power concerning human decision making.

Keywords: First-order stochastic dominance; Framing effects; Prospect theory; Salience theory (search for similar items in EconPapers)
JEL-codes: D8 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (9)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:soceco:v:59:y:2015:i:c:p:42-46

DOI: 10.1016/j.socec.2015.09.006

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