Wednesday, 14 October 2020 at 15:00-16:00 via MS Teams.

Presenter: Ayala Arad (Tel Aviv University)

Abstract

Many choices involve a large number of dimensions that ought to be considered before reaching a final decision. It is well accepted that decision makers sometimes place more weight on salient dimensions. But what makes one dimension more salient than another? Köszegi and Szeidl (2012) and Bordalo et al. (2013) suggest that dimensions are more prominent if, roughly speaking, the variance of their values in the choice set is larger. We provide experimental evidence of another determinant of salience|whether dimensions are turned-on or turned-off. Intuitively, a dimensioon of an alternative is turned-on if its value is in the range of its attractive facet. In one study, we show that introducing a small interest rate on checking accounts may actually decrease allocations to checking accounts and increase the share of riskless investments. We provide evidence that the small interest rate highlights or turns-on the safe gains dimension, bumping up its decision weight while shrouding other considerations, such as liquidity. Consequently, choices shift from the checking account to safe investments with superior returns. In another study, social preferences expressed over two unequal allocations are reversed depending on whether a third available allocation is equal or not. In this case, the all-equal split turns-on egalitarian considerations that shift preferences toward equality even when expressed over unequal splits. We present the Turned-on-Dimensions (ToD) model that draws on Köszegi and Szeidl (2012) and adds a discontinuous channel to the determination of decision weights, which allows to accommodate our findings.

Keywords: Dimension, Experiment, Salience, Social Preferences, Uncertainty.

The public research seminars of the Department of Economics and Finance (DEF) at Tallinn University of Technology  usually take place on the second and fourth Wednesdays of the month in both onsite and online format, unless announced otherwise. The presentation will last approximately 45 minutes followed by 15 minutes of discussion. The seminars are held in English. Copies of the paper are usually made available at the seminar. The DEF seminar series is organised in collaboration with the project ”Individual Behaviour and Economic  Performance: Methodological  Challenges and Institutional Context” (IBEP), which has received funding from the European Union’s Horizon 2020 Research and Innovation programme under Grant Agreement No 952574. Questions about the seminar can be sent to the IBEP seminar coordinator Rachatar Nilavongse.