Violations of first-order stochastic dominance as salience effects

Markus Dertwinkel-Kalt () and Mats Köster

No 189, DICE Discussion Papers from Heinrich Heine University Düsseldorf, Düsseldorf Institute for Competition Economics (DICE)

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. These 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
New Economics Papers: this item is included in nep-upt
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Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:dicedp:189

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