This proposal purports to develop psychologically founded models of economic decision making, test these models, and use them to shed light on several economic phenomena. The proposal builds on the psychology of selective attention. In particular, decision makers more easily retrieve from memory (precisely defined) representative events when making an inference, and they attach disproportionate attention and weighting to (precisely defined) salient choice options when making a choice. These ideas were modelled by the PI and his coauthors in previous work. The present grant proposal develops this research agenda in three stages. First, we plan to extend this approach to new theoretical problems such as the social psychology of stereotypes and the theory of consideration sets. Second, we plan to develop experimental tests dissecting the basic forces driving selective attention and decisions. Third, we plan to apply the theory to shed light on the following economic phenomena: a) investors’ risk perceptions in financial markets and asset price behavior, b) salient policy issues, voting behavior and political competition, c) consumer attention, product design and competition among firms, and d) discrimination in the labor market.