The Impact of Narrow Bracketing on Choices

35 Pages Posted: 14 Apr 2017 Last revised: 26 Jan 2021

See all articles by Alessandra Cillo

Alessandra Cillo

Bocconi University - Department of Decision Sciences

Enrico G. De Giorgi

University of St. Gallen - SEPS: Economics and Political Sciences

Date Written: January 26, 2021

Abstract

We analyze the bracketing behaviour of decision makers, i.e., whether multiple decisions are evaluated separately or the overall payoff distribution is considered. We propose a theoretical framework that allows us to disentangle preferences from bracketing and to measure the impact of bracketing on choices. We run an experiment considering two independent draws of binary lotteries and confirm the well-known result that subjects tend to narrowly bracket decisions, i.e., to consider each draw separately. We measure the impact of bracketing on choices and find that subjects' bracketing behavior generally leads to riskier representations of alternatives, such that people request an additional premium (that we call editing premium) compared to the case where the overall payoff distribution is considered. The editing premium can account up to 40\% of the overall risk premium.

Keywords: editing, segregation, aggregation, repeated lotteries.

JEL Classification: D81

Suggested Citation

Cillo, Alessandra and De Giorgi, Enrico G., The Impact of Narrow Bracketing on Choices (January 26, 2021). Available at SSRN: https://ssrn.com/abstract=2952095 or http://dx.doi.org/10.2139/ssrn.2952095

Alessandra Cillo

Bocconi University - Department of Decision Sciences ( email )

Via Roentgen 1
Milan, 20136
Italy

Enrico G. De Giorgi (Contact Author)

University of St. Gallen - SEPS: Economics and Political Sciences ( email )

Department of Economics
Bodanstrasse 6
CH-9000 St. Gallen
Switzerland
+41712242430 (Phone)

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