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

Published online by Cambridge University Press:  01 January 2025

Moritz Loewenfeld  and
Jiakun Zheng Open the ORCID record for Jiakun Zheng [Opens in a new window]
Moritz Loewenfeld*
Affiliation:
Toulouse School of Economics, University Toulouse Capitole, 1 Esplanade de l’Université, 31080 Toulouse Cedex 06, France
Jiakun Zheng*
Affiliation:
Present Address: Aix Marseille Univ, CNRS, AMSE, Centrale Marseille, Marseille, France
*
[email protected]
[email protected]
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Abstract

Salience theory relies on the assumption that not only the marginal distribution of lotteries, but also the correlation of payoffs across states impacts choices. Recent experimental studies on salience theory seem to provide evidence in favor of such correlation effects. However, these studies fail to control for event-splitting effects (ESE). In this paper, we seek to disentangle the role of correlation and event-splitting in two settings: (1) the common consequence Allais paradox as studied by Bordalo et al. (Q J Econ 127:1243–1285, 2012), Frydman and Mormann (The role of salience in choice under risk: An experimental investigation. Working Paper, 2018), and Bruhin et al. (J Risk Uncertain 65:139–184, 2022); (2) choices between Mao pairs as studied by Dertwinkel-Kalt and Köster (J Eur Econ Assoc 18:2057–2107, 2020). In both settings, we find evidence 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 thus shed doubt on the validity of salience theory in describing risky behavior.

Keywords

SalienceEvent-splittingProbability weightingConcordanceExperiment

JEL classification

C91: Laboratory, Individual Behavior D81: Criteria for Decision-Making under Risk and Uncertainty D91: Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making‡
Type
Original Paper
Information
Journal of the Economic Science Association , Volume 10 , Issue 2: Special Issue: Behavioral and Experimental Economics for Innovative Policy-Making (Articles 1 to 3) , December 2024 , pp. 346 - 366
Copyright
Copyright © The Author(s), under exclusive licence to Economic Science Association 2024.

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