Friday, March 1, 2013
Posted by D. Daniel Sokol
Pedro Bordalo (Royal Holloway), Nicola Gennaioli (CREI and Universitat Pompeu Fabra), and Andrei Shleifer (Harvard) discuss Salience and Consumer Choice.
ABSTRACT: 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 attributes, relative to that attribute's average level in the choice set (or generally, the evoked set). Consumers attach disproportionately high weight to salient attributes and their choices are tilted toward goods with higher quality/price ratios. The model accounts for a variety of disparate evidence, including decoy effects, context-dependent willingness to pay, and large shifts in demand in response to price shocks.