Revealing Choice Bracketing

TL;DR

This paper investigates how individuals tend to bracket their choices either narrowly or broadly across different decision contexts, revealing that most people are better described by narrow bracketing models.

Contribution

The study introduces a novel experimental design and revealed preference tests to distinguish between narrow and broad bracketing in decision-making.

Findings

74% of subjects are best described by narrow bracketing

13% of subjects are best described by broad bracketing

6% of subjects exhibit intermediate bracketing patterns

Abstract

Experiments suggest that people fail to take into account interdependencies between their choices -- they do not broadly bracket. Researchers often instead assume that people narrowly bracket, but existing designs do not test it. We design a novel experiment and revealed preference tests for how someone brackets their choices. In portfolio allocation under risk, social allocation, and induced-value shopping experiments, 40-43% of subjects are consistent with narrow bracketing and 0-16% with broad bracketing. Adjusting for each model's predictive precision, 74% of subjects are best described by narrow bracketing, 13% by broad bracketing, and 6% by intermediate cases.