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Salience Perception and Dominated Choices in Markets

Mark SchneiderCary A. DeckPatrick DeJarnette

出版	SSRN, 2023
URL	http://books.google.com.hk/books?id=z8T2zwEACAAJ&hl=&source=gbs_api

註釋

We extend and apply salience theory to choices over lotteries with multiple dimensions, such as insurance plans with deductibles and premiums, or monetary and non-monetary rewards. This extension can explain empirically observed dominated choices with large welfare costs to consumers (the selection of dominated insurance plans with low deductibles, dominated energy plans with a cancellation fee, and dominated consumption bundles with free features). The same framework also addresses a basic empirical puzzle in principal-agent problems: the effectiveness of non-monetary incentives over equivalent-in-value monetary incentives. Our results show that these systematically dominated choices documented in markets emerge from the same basic principles of salience perception that generate dominated choices in the laboratory.