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Implications of salience theory: Does the independence axiom always hold under uncertainty?

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  • Ostermair, Christoph

Abstract

So far, "salience theory of choice under risk" has been mainly applied to situations of risk rather than to those of uncertainty. In this paper, we show that salience theory provides the prediction that Allais paradoxes should never occur in the context of uncertainty. A finding which contra-dicts the scarce evidence existing up to now, and which indicates that further research on the topic is necessary.

Suggested Citation

  • Ostermair, Christoph, 2018. "Implications of salience theory: Does the independence axiom always hold under uncertainty?," Working Papers in Economics 2018,2, Bundeswehr University Munich, Economic Research Group.
    • Handle: RePEc:zbw:ubwwpe:20182
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    References listed on IDEAS

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    1. Tversky, Amos & Kahneman, Daniel, 1992. "Advances in Prospect Theory: Cumulative Representation of Uncertainty," Journal of Risk and Uncertainty, Springer, vol. 5(4), pages 297-323, October.
    2. Pedro Bordalo & Nicola Gennaioli & Andrei Shleifer, 2012. "Salience Theory of Choice Under Risk," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 127(3), pages 1243-1285.
    3. Daniel Kahneman & Amos Tversky, 2013. "Prospect Theory: An Analysis of Decision Under Risk," World Scientific Book Chapters, in: Leonard C MacLean & William T Ziemba (ed.), HANDBOOK OF THE FUNDAMENTALS OF FINANCIAL DECISION MAKING Part I, chapter 6, pages 99-127, World Scientific Publishing Co. Pte. Ltd..
    4. George Wu & Richard Gonzalez, 1999. "Nonlinear Decision Weights in Choice Under Uncertainty," Management Science, INFORMS, vol. 45(1), pages 74-85, January.
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    More about this item

    Keywords

    Models of decision-making under risk and uncertainty; Allais paradox; Independence axiom; Salience theory;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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