Testing for salience effects in choices under risk

Carsten Søren Nielsen; Alexander Christopher Sebald; Peter Norman Sørensen

doi:10.1162/rest_a_01307

Testing for salience effects in choices under risk

Carsten Søren Nielsen, Alexander Christopher Sebald, Peter Norman Sørensen

Research output: Contribution to journal › Journal article › Research › peer-review

Abstract

We construct and run an experiment to test the most basic choice effect pre-
dicted by Salience Theory. Subjects allocate wealth between a risky and a safe
investment. While we vary an apparent payoff ratio to influence salience, treat-
ments have economically equivalent consequences. Most other theories of behavior
then predict zero effect. Our experimental findings are strongly consistent with
the behavioral implication of a continuous version of Salience Theory. We provide
a novel structural estimate on the strength of salience. In our setting, increasing
the relative payoff contrast by one percent is equivalent to an increased odds ratio
by about 0.4 percent.

Original language	English
Journal	Review of Economics and Statistics
ISSN	0034-6535
DOIs	https://doi.org/10.1162/rest_a_01307
Publication status	Published - 2024

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10.1162/rest_a_01307

Cite this

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title = "Testing for salience effects in choices under risk",

abstract = "We construct and run an experiment to test the most basic choice effect pre-dicted by Salience Theory. Subjects allocate wealth between a risky and a safeinvestment. While we vary an apparent payoff ratio to influence salience, treat-ments have economically equivalent consequences. Most other theories of behaviorthen predict zero effect. Our experimental findings are strongly consistent withthe behavioral implication of a continuous version of Salience Theory. We providea novel structural estimate on the strength of salience. In our setting, increasingthe relative payoff contrast by one percent is equivalent to an increased odds ratioby about 0.4 percent.",

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AU - Nielsen, Carsten Søren

AU - Sebald, Alexander Christopher

AU - Sørensen, Peter Norman

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N2 - We construct and run an experiment to test the most basic choice effect pre-dicted by Salience Theory. Subjects allocate wealth between a risky and a safeinvestment. While we vary an apparent payoff ratio to influence salience, treat-ments have economically equivalent consequences. Most other theories of behaviorthen predict zero effect. Our experimental findings are strongly consistent withthe behavioral implication of a continuous version of Salience Theory. We providea novel structural estimate on the strength of salience. In our setting, increasingthe relative payoff contrast by one percent is equivalent to an increased odds ratioby about 0.4 percent.

AB - We construct and run an experiment to test the most basic choice effect pre-dicted by Salience Theory. Subjects allocate wealth between a risky and a safeinvestment. While we vary an apparent payoff ratio to influence salience, treat-ments have economically equivalent consequences. Most other theories of behaviorthen predict zero effect. Our experimental findings are strongly consistent withthe behavioral implication of a continuous version of Salience Theory. We providea novel structural estimate on the strength of salience. In our setting, increasingthe relative payoff contrast by one percent is equivalent to an increased odds ratioby about 0.4 percent.

U2 - 10.1162/rest_a_01307

DO - 10.1162/rest_a_01307

M3 - Journal article

SN - 0034-6535

JO - Review of Economics and Statistics

JF - Review of Economics and Statistics

ER -