Working Paper: NBER ID: w17947
Authors: Pedro Bordalo; Nicola Gennaioli; Andrei Shleifer
Abstract: We present a theory of context-dependent choice in which a consumer's attention is drawn to salient attributes of goods, such as quality or price. An attribute is salient for a good when it stands out among the good's characteristics, in the precise sense of being furthest away in that good from its average level in the choice set (or more generally, an evoked set). A local thinker chooses among goods by attaching disproportionately high weights to their salient attributes. When goods are characterized by only one quality attribute and price, salience tilts choices toward goods with higher ratios of quality to price. We use the model to account for a variety of disparate bits of evidence, including decoy effects in consumer choice, context-dependent willingness to pay, balance of qualities in desirable goods, and shifts in demand toward low quality goods when all prices in a category rise. We then apply the model to study discounts and sales, and to explain demand for low deductible insurance.
Keywords: Salience; Consumer Choice; Context-Dependent Choice; Behavioral Economics
JEL Codes: D03; D11
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| context (store) (D19) | choice (cheaper wine) (L66) |
| context (restaurant) (Y60) | choice (higher-quality wine) (L66) |
| salience of attributes (D91) | consumer choice (D10) |
| salience affects perceived value of attributes (D91) | consumer choice (D10) |
| salience (D91) | decision-making process (D70) |
| salience-driven decision-making (D91) | consumer anomalies (D12) |