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We introduce diagnostic expectations into a standard setting of price formation in which investors learn about the fundamental value of an asset and trade it. We study the interaction of diagnostic expectations with two well-known mechanisms: learning from prices and speculation (buying for...
Persistent link: https://www.econbiz.de/10012481046
We present a model of stereotypes in which a decision maker assessing a group recalls only that group's most representative or distinctive types relative to other groups. Because stereotypes highlight differences between groups, and neglect likely common types, they are especially inaccurate...
Persistent link: https://www.econbiz.de/10012458558
We present a model of judicial decision making in which the judge overweights the salient facts of the case. The context of the judicial decision, which is comparative by nature, shapes which aspects of the case stand out and draw the judge's attention. By focusing judicial attention on such...
Persistent link: https://www.econbiz.de/10012458967
We present a model of market competition and product differentiation in which consumers' attention is drawn to the products' most salient attributes. Firms compete for consumer attention via their choices of quality and price. With salience, strategic positioning of each product affects how all...
Persistent link: https://www.econbiz.de/10012459585
We present a simple model of asset pricing in which payoff salience drives investors' demand for risky assets. The key implication is that extreme payoffs receive disproportionate weight in the market valuation of assets. The model accounts for several puzzles in finance in an intuitive way,...
Persistent link: https://www.econbiz.de/10012459953
We present a theory of context-dependent choice in which a consumer's attention is drawn to salient attributes of goods, such as quality or price. An attribute is salient for a good when it stands out among the good's characteristics, in the precise sense of being furthest away in that good from...
Persistent link: https://www.econbiz.de/10012460712
We provide a novel account of experimental evidence for the endowment effect using the salience mechanism (Bordalo, Gennaioli, and Shleifer, 2011). The two-stage procedure implemented in experiments implies that the endowed good and other goods are evaluated in different contexts. We describe...
Persistent link: https://www.econbiz.de/10012460898
We present a theory of choice among lotteries in which the decision maker's attention is drawn to (precisely defined) salient payoffs. This leads the decision maker to a context-dependent representation of lotteries in which true probabilities are replaced by decision weights distorted in favor...
Persistent link: https://www.econbiz.de/10012462269
Simonsohn and Loewenstein (SL 2006) present evidence that a household moving from one US city to another tends to pay a rent level that is closer to the city of origin, relative to comparable locals. Building on "Memory, Attention, and Choice" (BGS 2019), we show that these effects emerge from...
Persistent link: https://www.econbiz.de/10012479601
We explore the idea that judgment by representativeness reflects the workings of episodic memory, especially interference. In a new laboratory experiment on cued recall, participants are shown two groups of images with different distributions of colors. We find that i) decreasing the frequency...
Persistent link: https://www.econbiz.de/10012479623