Salience Bias : A Theoretical Framework About the Importance of Budget Constraints Perception on Consumption, Production and Strategical Behavior

We postulate a general salience framework where agents are biased in their perception about the impact of consumption on their (intertemporal and otherwise) budget constraints. Three applications are provided. First, we trace and illustrate the consequences of applying this salience framework to assess the impact of underestimating leisure’s effects on nonlinear (or linear) budget constraints. Second, following a traditional hyperbolic intertemporal model, we add salience biases to disentangle and measure the effects of present vs. salience biases. Third, we investigate the implications of firm managers incurring salience biases in production plans. With this results, we derive monetary estimations about inefficiency costs and discuss their policy implications. Finally, we discuss experimental designs that identify the existence of salience biases and distinguish them from other present biases such as hyperbolic discounting