Salience

43 Pages Posted: 20 Sep 2021 Last revised: 20 May 2022

See all articles by Pedro Bordalo

Pedro Bordalo

University of Oxford - Said Business School

Nicola Gennaioli

Bocconi University - Department of Finance; Bocconi University - IGIER - Innocenzo Gasparini Institute for Economic Research

Andrei Shleifer

Harvard University - Department of Economics; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI)

Date Written: September 2021

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.

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Suggested Citation

Bordalo, Pedro and Gennaioli, Nicola and Shleifer, Andrei, Salience (September 2021). NBER Working Paper No. w29274, Available at SSRN: https://ssrn.com/abstract=3926955

Pedro Bordalo (Contact Author)

University of Oxford - Said Business School ( email )

Park End Street
Oxford, OX1 1HP
Great Britain

Nicola Gennaioli

Bocconi University - Department of Finance ( email )

Via Roentgen 1
Milano, MI 20136
Italy

Bocconi University - IGIER - Innocenzo Gasparini Institute for Economic Research ( email )

Via Roentgen 1
Milan, 20136
Italy

Andrei Shleifer

Harvard University - Department of Economics ( email )

Littauer Center
Cambridge, MA 02138
United States
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617-496-1708 (Fax)

HOME PAGE: http://www.economics.harvard.edu/~ashleife/

National Bureau of Economic Research (NBER)

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European Corporate Governance Institute (ECGI)

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