Turning on Salient Dimensions: An Experimental Study

abstract:

Is it possible that adding an interest rate to one's checking account may increase her share of investments in other options? In an experiment, we find that individuals allocate a bonus more often to a checking account with no interest than to a checking account with 2% interest, all else being equal. Alongside this apparent violation of monotonicity, the added interest rate increases choices in riskless investments but not in risky ones. We propose that the small but positive interest of the checking account triggers subjects to focus on the dimension of safe gains and highlights the attractiveness of more profitable riskless investments. While the above is based on a hypothetical study, we find a similar tendency in two additional incentivized environments: allocation choice in social contexts and choice under uncertainty. We conclude that turning on a shrouded dimension of alternatives creates a salient criterion according to which comparisons are made, leading to a predictable choice pattern.