A Behavioral Foundation for Endogenous Salience

Category: Applied Microeconomics and Organization Seminar
When: 23 January 2019
, 17:15
 - 18:30
Where: RuW 4.201

A Behavioral Foundation for Endogenous Salience

(with Andrew Ellis)



We develop choice-theoretic foundations for the salient thinking model of Bordalo
et al. [2013b] (BGS) with an endogenous reference point. We provide simple properties
of a decision maker’s choices that are necessary and sufficient for representation by the
model even when the reference point is determined by the menu. Our results highlight
the model’s strong predictions and provide a new characterization of one of its key
innovations, the salience function. To better understand the salient thinking model’s
approach, a generalization, the regional preference model (RPM), is introduced that
is more flexible while retaining its key ingredients. RPM provides a novel connection
between three prominent models, as it also nests the loss aversion model of Tversky
and Kahneman [1991] and the status quo bias model of Masatlioglu and Ok [2005].