Salience Theory of Choice Under Risk
Pedro Bordalo, Nicola Gennaioli, Andrei Shleifer
The Quarterly Journal of Economics / NBER · 2012
Edited by Paweł Raja, PhD · Published · Updated
Abstract
Proposes that decision makers overweight the most salient payoffs of a lottery—those that stand out relative to the alternatives—producing context-dependent risk attitudes without any change in underlying preferences.
Methodology
A formal model in which the salience of payoff states distorts the decision weights attached to outcomes, tested against classic anomalies in decision under risk.
Findings
Salience-based weighting reproduces the Allais paradox, preference reversals, and framing effects, and predicts when people will be risk-seeking (salient upside) versus risk-averse (salient downside) as a function of the choice context.
Applied nudge
Context sets the reference point that makes an attribute salient—arrange the choice set so that the beneficial option's advantages, not its costs, are the standout feature.
Citation
Bordalo, P., Gennaioli, N., & Shleifer, A. (2012). Salience theory of choice under risk. Quarterly Journal of Economics, 127(3), 1243-1285.
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