Turning on Dimensional Prominence in Decision Making: Experiments and a Model

Ayala Arad; Amnon Maltz

doi:10.1287/mnsc.2021.4205

Turning on Dimensional Prominence in Decision Making: Experiments and a Model

Ayala Arad, Amnon Maltz

Department of Economics

Research output: Contribution to journal › Article › peer-review

Abstract

Could introducing a tiny interest rate on positive balances of checking accounts affect investment decisions? We suggest, counterintuitively, that it might decrease allocations to checking accounts and increase riskless investments with higher returns. This violation of monotonicity is a potential outcome of a novel behavioral phenomenon that we formalize and investigate experimentally. It posits that even a small interest rate highlights or turns on the safe gains dimension, bumping up its decision weight while shrouding other considerations, such as liquidity. Consequently, choices may shift from the most liquid option, the checking account, to safe investments with superior returns. Our exploration of this phenomenon covers three different choice environments: investment decisions, social preferences, and choice under uncertainty.

Original language	English
Pages (from-to)	6075-6099
Number of pages	25
Journal	Management Science
Volume	68
Issue number	8
DOIs	https://doi.org/10.1287/mnsc.2021.4205
State	Published - Aug 2022

Bibliographical note

Funding Information:
History: Accepted by Yan Chen, behavioral economics and decision analysis. Funding: This work was supported by The Henry Crown Institute of Business Research in Israel, The Solomon Lew Center for Consumer Behavior, The Coller Foundation. Supplemental Material: Data are available at https://doi.org/10.1287/mnsc.2021.4205.

Funding Information:
This work was supported by The Henry Crown Institute of Business Research in Israel, The Solomon Lew Center for Consumer Behavior, The Coller Foundation. The authors thank Neta Klein, Eli Mograbi, Dor Shlenger, Yuval Tsuk, Gilad Bar-Levav, Emily Klinger, and Eliad Amsalem for their great assistance. The authors also thank Ariel Rubinstein, Yair Antler, Dotan Persitz, and Moti Michaeli as well as seminar participants at the Hebrew University, Ben-Gurion University, University of Haifa, Tallinn University of Technology, and participants at The BRIC5 conference, The Second Behavior Change Conference in Coller School of Management, annual meeting of the Israeli Association of Economics, CESS 15th Anniversary meeting at NYU, 2020 ESA World Meeting, and BREW India 2020 for helpful comments.

Publisher Copyright:
© 2022 INFORMS.

Keywords

attention
dimensions
experiment
salience
social preferences

ASJC Scopus subject areas

Strategy and Management
Management Science and Operations Research

Access to Document

10.1287/mnsc.2021.4205

Cite this

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abstract = "Could introducing a tiny interest rate on positive balances of checking accounts affect investment decisions? We suggest, counterintuitively, that it might decrease allocations to checking accounts and increase riskless investments with higher returns. This violation of monotonicity is a potential outcome of a novel behavioral phenomenon that we formalize and investigate experimentally. It posits that even a small interest rate highlights or turns on the safe gains dimension, bumping up its decision weight while shrouding other considerations, such as liquidity. Consequently, choices may shift from the most liquid option, the checking account, to safe investments with superior returns. Our exploration of this phenomenon covers three different choice environments: investment decisions, social preferences, and choice under uncertainty.",

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Turning on Dimensional Prominence in Decision Making: Experiments and a Model

Abstract

Bibliographical note

Keywords

ASJC Scopus subject areas

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