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Cary Frydman – “The Role of Salience and Attention in Choice Under Risk: An Experimental Investigation”
Thursday, March 2, 2017, 6:00 pm - 7:30 pm
|We conduct two experiments to test the predictions of a recently proposed theory of context-dependent choice under risk called salience theory. The theory predicts that a decision maker’s attention is drawn to precisely defined salient payoffs, and these payoffs are overweighted in the choice process. In our first experiment, subjects choose between risky lotteries and we exogenously manipulate the correlation structure between lotteries; this design feature provides an environment to separate salience theory from expected utility and cumulative prospect theory. In the second experiment, we test whether attention has a causal impact on risky choice. We find two main results. First, the correlation structure between lotteries has a systematic impact on risk taking. This result is predicted by salience theory, but is inconsistent with all parameterizations of expected utility and cumulative prospect theory. Second, we find evidence that manipulating attention through a visual salience channel has a causal, but asymmetric, impact on risky choice.