Salience and Consumer Choice / Pedro Bordalo, Nicola Gennaioli, Andrei Shleifer.

Format:

Book

Author/Creator:

Bordalo, Pedro.

Contributor:

National Bureau of Economic Research.

Gennaioli, Nicola.

Shleifer, Andrei.

Series:

Working Paper Series (National Bureau of Economic Research) no. w17947.

NBER working paper series no. w17947

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2012.

Summary:

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 its average level in the choice set (or more generally, an evoked set). A local thinker chooses among goods by attaching disproportionately high weights to their salient attributes. When goods are characterized by only one quality attribute and price, salience tilts choices toward goods with higher ratios of quality to price. We use the model to account for a variety of disparate bits of evidence, including decoy effects in consumer choice, context-dependent willingness to pay, balance of qualities in desirable goods, and shifts in demand toward low quality goods when all prices in a category rise. We then apply the model to study discounts and sales, and to explain demand for low deductible insurance.

Notes:

Print version record

March 2012.