The Role of Salience and Attention in Choice under Risk: An Experimental Investigation

Abstract

We conduct two experiments that test a recently proposed theory of context-dependent choice under risk called salience theory. The theory predicts that a decision maker’s attention is drawn to precisely defined salient payoffs, and these payoffs are overweighted in the choice process. In our first experiment, subjects make a series of highly incentivized choices between a risky lottery and a certain option while their eye-movements are recorded. In the second experiment, subjects choose between a risky lottery and a certain option, but we exogenously manipulate the visual salience of the risky lottery. We find three main results. First, the data on lottery choices is broadly consistent with salience theory as risk-taking increases when the upside of the risky lottery becomes more salient. Second, using eye-tracking data, we find that subjects do not pay more attention to the state that is theoretically salient, which is inconsistent with the theory; instead, subjects pay more attention to the risky lottery compared to the certain option when the risky lottery’s upside is salient. Third, risk taking is reduced when a lottery’s downside becomes visually salient. More generally, our results provide evidence that attention is an important and causal factor in determining choice under risk.