Programme

Title: Attention Theory

 Professor Soo Hong CHEW

( Southwestern University of Finance and Economics; National University of Singapore)

Abstract:

We model the role of attention in decision making under risk and uncertainty from the perspective of the decision maker as a cognitive miser, and arrive at the utility of a lottery through potentially volatile attention-dependent decision weights. The resulting Attention Theory (AT) exhibits continuity in nonlinear probability weighting and can account for a range of loss-gain attitude between loss aversion and gain seeking. When between loss aversion and gain seeking. When top-down attention is stable and consequentialist, AT can account for Allais behavior, fourfold pattern of risk attitude, and disjunction effect. Under volatile consequentialist attention, AT encompasses multiple attention functions and can exhibit ambiguity aversion, discontinuity in valuation from event splitting, and uncertainty effects. In binary choice, when the bivariate attention function is symmetric, AT reduces to Salience Theory and overlaps with skew symmetric bilinear (SSB) correlation preference along with generalized Regret Theory. AT goes beyond SSB correlation preference under asymmetric attention which is necessary and sufficient for Allais behavior in the common-consequence problem. In the presence of substantial non-consequentialist stimuli through bottom-up salience, AT delivers context dependent choice including volatility in loss-gain attitude, source preference, and default bias. Moreover, choice behavior may appear random when the attention function varies with specific stimuli or when the stimuli are themselves stochastic.