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Salience or event-splitting? An experimental investigation of correlation sensitivity in risk-taking

Author

Listed:
  • Moritz Loewenfeld

    (TSE-R - Toulouse School of Economics - UT Capitole - Université Toulouse Capitole - UT - Université de Toulouse - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement)

  • Jiakun Zheng

    (Renmin University of China = Université Renmin de Chine, China Financial Policy Research Center - Renmin University of China = Université Renmin de Chine, AMSE - Aix-Marseille Sciences Economiques - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique)

Abstract

Salience theory relies on the assumption that not only the marginal distribution of lotteries, butalso the correlation of payoffs across states impacts choices. Recent experimental studies on saliencetheory seem to provide evidence in favor of such correlation effects. However, these studies failto control for event-splitting effects (ESE). In this paper, we seek to disentangle the role of corre-lation and event-splitting in two settings: 1) the common consequence Allais paradox as studiedby Bordalo et al. (2012), Bruhin et al. (2022), and Frydman and Mormann (2018); 2) choicesbetween Mao pairs as studied by Dertwinkel-Kalt and K¨oster (2020). In both settings, we findevidence suggesting that recent findings supporting correlation effects are largely driven by ESE.Once controlling for ESE, we find no consistent evidence for correlation effects. Our results thusshed doubt on the validity of salience theory in describing risky behavior.

Suggested Citation

  • Moritz Loewenfeld & Jiakun Zheng, 2024. "Salience or event-splitting? An experimental investigation of correlation sensitivity in risk-taking," Post-Print hal-04678554, HAL.
    • Handle: RePEc:hal:journl:hal-04678554
    DOI: 10.1007/s40881-024-00162-w
    Note: View the original document on HAL open archive server: https://hal.science/hal-04678554v1
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