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Adaptive Decision Making Under Salience Effects

Faragó, Balázs LU (2025) NEKP01 20251
Department of Economics
Abstract
When people (repeatedly) choose among items characterized by multiple attributes
( price, quality, brand etc..) they often over-or under-weight certain attributes
depending on which features stand out in the choice set. Salience theory explains how these distortions arise in a static setting. I extend the existing salience theoretic model for deterministic choice to a setting in which the decision maker chooses from the same choice set several times adapting his reference and preference. Furthermore, I distinguish the utility they anticipate when deciding from the utility they actually experience, letting both the reference point and pre-distortion weights adapt over time, based on the difference between
these two notions. The main... (More)
When people (repeatedly) choose among items characterized by multiple attributes
( price, quality, brand etc..) they often over-or under-weight certain attributes
depending on which features stand out in the choice set. Salience theory explains how these distortions arise in a static setting. I extend the existing salience theoretic model for deterministic choice to a setting in which the decision maker chooses from the same choice set several times adapting his reference and preference. Furthermore, I distinguish the utility they anticipate when deciding from the utility they actually experience, letting both the reference point and pre-distortion weights adapt over time, based on the difference between
these two notions. The main analytical results regard the convergence of reference points to a weighted average of items that a rational agent could choose. I specify conditions which allow this result and complementary results. I further analyse the proposed dynamic mechanism through simulations which show that all agents benefit from salience in this setting. Adaptation regarding reference points and preferences are both beneficial, especially when combined. I compare standard salience theory with salient regret theory (a decision rule with attractive properties) and find that the prior yields higher experienced utility than the latter in simulations. Lastly, I make a stronger observation about the convergence of reference points based on simulation results. (Less)
Popular Abstract
these two notions. The main analytical results regard the convergence of reference points to a weighted average of items that a rational agent could choose. I specify conditions which allow this result and complementary results. I further analyse the proposed dynamic mechanism through simulations which show that all agents benefit from salience in this setting. Adaptation regarding reference points and preferences are both beneficial, especially when combined. I compare standard salience theory with salient regret theory (a decision rule with attractive properties) and find that the prior yields higher experienced utility than the latter in simulations. Lastly, I make a stronger observation about the convergence of reference points based... (More)
these two notions. The main analytical results regard the convergence of reference points to a weighted average of items that a rational agent could choose. I specify conditions which allow this result and complementary results. I further analyse the proposed dynamic mechanism through simulations which show that all agents benefit from salience in this setting. Adaptation regarding reference points and preferences are both beneficial, especially when combined. I compare standard salience theory with salient regret theory (a decision rule with attractive properties) and find that the prior yields higher experienced utility than the latter in simulations. Lastly, I make a stronger observation about the convergence of reference points based on simulation results. (Less)
Please use this url to cite or link to this publication:
author
Faragó, Balázs LU
supervisor
organization
course
NEKP01 20251
year
type
H2 - Master's Degree (Two Years)
subject
keywords
Salience, Attention, Memory, Repeated choice, Behavioural Economics
language
English
id
9205811
date added to LUP
2025-09-12 10:52:21
date last changed
2025-09-12 10:52:21
@misc{9205811,
  abstract     = {{When people (repeatedly) choose among items characterized by multiple attributes
( price, quality, brand etc..) they often over-or under-weight certain attributes
depending on which features stand out in the choice set. Salience theory explains how these distortions arise in a static setting. I extend the existing salience theoretic model for deterministic choice to a setting in which the decision maker chooses from the same choice set several times adapting his reference and preference. Furthermore, I distinguish the utility they anticipate when deciding from the utility they actually experience, letting both the reference point and pre-distortion weights adapt over time, based on the difference between
these two notions. The main analytical results regard the convergence of reference points to a weighted average of items that a rational agent could choose. I specify conditions which allow this result and complementary results. I further analyse the proposed dynamic mechanism through simulations which show that all agents benefit from salience in this setting. Adaptation regarding reference points and preferences are both beneficial, especially when combined. I compare standard salience theory with salient regret theory (a decision rule with attractive properties) and find that the prior yields higher experienced utility than the latter in simulations. Lastly, I make a stronger observation about the convergence of reference points based on simulation results.}},
  author       = {{Faragó, Balázs}},
  language     = {{eng}},
  note         = {{Student Paper}},
  title        = {{Adaptive Decision Making Under Salience Effects}},
  year         = {{2025}},
}