A critical note on Salience Theory of choice under risk

•The paper points out serious flaws in the Salience Theory model.•The lottery certainty equivalent is undefined for some ranges of probabilities.•Monotonicity is violated.•The origin of the model peculiarity lies in switching between different evaluation expressions.•The number of expressions and switching values grows rapidly with the number of states considered.

Salience Theory Bordalo et al. (2012a) is a context-dependent theory of choice under risk, where objective probabilities are replaced by decision weights distorted in favor of salient payoffs. The detailed analysis presented in this paper points out serious flaws in this model, the most serious of which is that the lottery certainty equivalent is undefined for some ranges of probabilities. Moreover, the model violates monotonicity. The origin of the peculiar features of the model lies in switching between different evaluation expressions that depend on salience conditions or the number of prospect payoffs. The number of evaluation expressions and switching values grows rapidly with the number of states considered.