Narrow Bracketing and Dominated Choices

S-Tier
Journal: American Economic Review
Year: 2009
Volume: 99
Issue: 4
Pages: 1508-43

Score contribution per author:

4.022 = (α=2.01 / 2 authors) × 4.0x S-tier

α: calibrated so average coauthorship-adjusted count equals average raw count

Abstract

We show that any decision maker who "narrowly brackets" (evaluates decisions separately) and does not have constant-absolute-risk-averse preferences will make a first-order stochastically dominated combined choice in some simple pair of independent binary decisions. We also characterize the preference-contingent monetary cost from this mistake. Empirically, in a real-stakes laboratory experiment that replicates Tversky and Kahneman's (1981) experiment, 28 percent of participants choose dominated combinations. In a representative survey eliciting hypothetical large-stakes choices, higher proportions do so. Violation rates vary little with personal characteristics. Average preferences are prospect-theoretic, with an estimated 89 percent of people bracketing narrowly. (JEL D12, D81)

Technical Details

RePEc Handle
repec:aea:aecrev:v:99:y:2009:i:4:p:1508-43
Journal Field
General
Author Count
2
Added to Database
2026-01-29