Working Paper: NBER ID: w29274
Authors: Pedro Bordalo; Nicola Gennaioli; Andrei Shleifer
Abstract: We review the fast-growing work on salience and economic behavior. Psychological research shows that salient stimuli attract human attention “bottom up” due to their high contrast with surroundings, their surprising nature relative to recalled experiences, or their prominence. The Bordalo, Gennaioli and Shleifer (2012, 2013, 2020) models of salience show how bottom up attention can distort economic choice by distracting decision makers from their immediate goals or from certain choice attributes. We show that this approach explains many puzzles: separately treated departures from “rationality” such as probability weighting, menu effects, reference point effects, and framing, emerge as distinct manifestations of the same principle of bottom up attention to salient stimuli. We highlight new predictions and discuss open conceptual questions, as well as potential applications in finance, industrial organization, advertising, and politics.
Keywords: salience; economic behavior; attention; decision-making; psychology
JEL Codes: D0; D03; D81; D90
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| salient stimuli (D91) | suboptimal decisions (D91) |
| bottom-up attention (D87) | distorted economic choices (H31) |
| design of luxury handbag (L67) | higher spending (H59) |
| attention drawn to surprising asset returns (G19) | risk attitudes in financial markets (G41) |
| framing effects (D91) | impact valuation (F69) |
| bottom-up attention (D87) | risk aversion (D81) |
| bottom-up attention (D87) | risk-taking (D81) |