Salient Cues and Complexity
82 Pages Posted: 12 Nov 2020 Last revised: 5 Dec 2020
Date Written: December 4, 2020
Economic decisions are often influenced by "salient cues" that stand out in the choice context and attract attention. Intuitively, through channeling attention to a subset of the relevant information, salience thereby reduces the "dimensionality" of a decision problem. Building on this intuition, we hypothesize that people behave more consistently across differently complex problems if there is a common salient cue that guides their attention and, consequently, behavior. We experimentally test and confirm this hypothesis in the context of choice under risk: while revealed attitudes toward skewed risks — which have extreme and salient outcomes — are consistent across differently complex problems, revealed attitudes toward symmetric risks — where such a salient cue is missing — vary significantly with complexity. We provide suggestive evidence that these findings are driven by the extreme outcomes of skewed risks attracting a subject's attention and guiding choices. To rationalize our experimental results, we propose a variant of Bordalo et al.'s (2012) salience theory.
Keywords: Salience, Complexity, Skewness, Portfolio Selection, (Naive) Diversification
JEL Classification: D81
Suggested Citation: Suggested Citation