Different Types of Saliency Bias and the Prospect Theory

Behavioral Economics and Finance
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There are different types of saliency bias that were covered during the week and highlighted the tendency where people outweigh the outcomes that are considered important than others. Ideally, the outcomes would be classified as more or less salient depending on how peoples’ past experiences and the events they have encountered. Individuals make decisions based on the choices they have under uncertainty. For example, a person who has made covered from large losses is consider gambles that may be otherwise unacceptable.
The time-based saliency would be considered as more salient than other biases. This is because when making decisions, individuals are more concerned about the timing and tend to evaluate the past, current and future situations. For example, people can overweight some of the events that have happened recently while underweighting those that have not occurred recently. When a decision to purchase insurance for protection against disasters such as fire, the interest becomes more salient after the fires have happened and people are therefore highly interested in the insurance. However, when no cases of fire have been reported, then it becomes less salient, and almost no one is interested in the insurance plan. The time-based saliency would be utilized before making considerable investments in a given industry; this is critical since it would help in understanding the current situation in the market and the investor would examine how the industry has performed in the past.
However, there are biases that on...