Narrow Bracketing and Dominated Choices
By Matthew Rabin, Georg Weizsäcker. Social Science Research Network, 2009
291 citations recorded by the source corpus.
An experiment by Tversky and Kahneman (1981) illustrates that people's tendency to evaluate risky decisions separately can lead them to choose combinations of choices that are first-order stochastically dominated by other available combinations. We investigate the generality of this effect both theoretically and experimentally. We show that for any decisionmaker who does not have constant-absolute-risk-averse preferences and who evaluates her decisions one by one, there exists a simple pair of independent binary decisions where the decisionmaker will make a dominated combination of choices. We also characterize, as a function of a person's preferences, the amount of money that she can lose due to a single mistake of this kind. The theory is accompanied by both a real-stakes laboratory experiment and a large-sample survey from the general U.S. population. Replicating Tversky and Kahneman's original experiment where decisionmakers with prototypical prospect-theory preferences will choose a dominated combination, we find that 28% of the participants do so. In the survey we ask the respondents about several hypothetical large-stakes choices, and find higher proportions of dominated choice combinations. A statistical model that estimates preferences from the survey results is best fit by assuming people have utility functions that are close to prospect-theory value functions and that about 83% of people bracket narrowly. None of these results varies strongly with the personal characteristics of participants. We also demonstrate directly that dominated choices are driven by narrow bracketing: when we eliminate the possibility of narrow bracketing by using a combined presentation of the decisions, the dominated choices are eliminated in the laboratory experiment and are greatly reduced in the survey.
Subfields: Economics and Econometrics, General Decision Sciences, Safety Research
View Paper: https://www.semanticscholar.org/paper/e83a25d8720ffea82e96b1b11d9b93c2a614e031
How researchers see this paper
The researchers whose trusted networks rank it highest, strongest advocate first. Every researcher gets a different order.
In Economics and Econometrics
In General Decision Sciences
In Safety Research
Citations in the corpus
- Nudging Energy Efficiency Behavior: The Role of Information Labels (2014, unknown): “Regarding information content, we evaluated the use of economic information (“estimated yearly operating cost” in the current EnergyGuide label), physical information on energy use (“estimated yearly energy use” in the current EnergyGuide label), as well as the inclusion or exclusion of the range…”
- Social influences on risk attitudes: Applications in economics (2012, background): “Excessive loss aversion is often thought to occur because of narrow bracketing of decision problems, whereby decisions are considered one by one rather than in the larger perspective of lifetime decisions (Read, Loewenstein, and Rabin 1999; Rabin and Weizsäcker 2009). Accountability seems effective ”
- A Model of Focusing in Economic Choice (2011, unknown): “Our formulation reflects the idea, broadly consistent with evidence on narrow bracketing (e.g. Tversky and Kahneman (1981) and Rabin and Weizsäcker (2009)), that people make decisions one-by-one rather than by integrating them into a grand lifetime decision problem.”
- Evaluating Behaviorally Motivated Policy: Experimental Evidence from the Lightbulb Market (2015, unknown): “Many economists have used this platform, including Allcott (2013), Fong and Luttmer (2009), Heiss, McFadden, and Winter (2007), Newell and Siikamaki (2013), and Rabin and Weizsacker (2009).”