Salience Theory of Choice Under Risk
Pedro Bordalo,
Nicola Gennaioli and
Andrei Shleifer
The Quarterly Journal of Economics, 2012, vol. 127, issue 3, 1243-1285
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. JEL Codes: D03, D81. Copyright 2012, Oxford University Press.
Date: 2012
References: Add references at CitEc
Citations: View citations in EconPapers (446)
Downloads: (external link)
http://hdl.handle.net/10.1093/qje/qjs018 (application/pdf)
Access to full text is restricted to subscribers.
Related works:
Working Paper: Salience Theory of Choice Under Risk (2012) 
Working Paper: Salience theory of choice under risk (2011)
Working Paper: Salience Theory of Choice Under Risk (2010) 
Working Paper: Salience Theory of Choice Under Risk 
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
HTML/Text
Persistent link: https://EconPapers.repec.org/RePEc:oup:qjecon:v:127:y:2012:i:3:p:1243-1285
Ordering information: This journal article can be ordered from
https://academic.oup.com/journals
Access Statistics for this article
The Quarterly Journal of Economics is currently edited by Robert J. Barro, Lawrence F. Katz, Nathan Nunn, Andrei Shleifer and Stefanie Stantcheva
More articles in The Quarterly Journal of Economics from President and Fellows of Harvard College
Bibliographic data for series maintained by Oxford University Press ().