Choice Bracketing

Characterizing the causes, dynamics, and consequences of choice deferral

The fact that people often avoid making decisions is well known, and past research has helped to identify some of the conditions and reasons for doing so. For instance, people may forgo choices between bad options because they prefer not to end up with one of those options. It is much less clear when and why people avoid choosing in cases where they eventually will have to make a given decision. To study such instances of choice deferral, we presented participants with a series of choices, and for each choice they were allowed to either choose immediately or defer the decision until later in the experiment. Across six experiments and three choice domains (choices among consumer goods, artwork, and political candidates), we find that the strongest predictor of choice deferral is the overall value of a given set of options, with relative value (i.e., how hard it is to identify the best option) counterintuitively playing a smaller role. We show that the influence of overall value on choice deferral can be accounted for by a dynamic decision model according to which participants appraise the option set relative to a criterion before deciding whether to choose or defer, comparing this to a previous model whereby participants make such a decision based on a predetermined decision time limit. We further reveal that the influence of overall value on choice deferral is determined by how congruent options are with a given choice goal (choose-best or choose-worst) rather than simply how bad those options are. Collectively, our findings shed new light on how people decide to put off the inevitable.

A Behavioral Model of Rational Choice

Abstract. Introduction, 99. — I. Some general features of rational choice, 100.— II. The essential simplifications, 103. — III. Existence and uniqueness of

Behavioral Impediments to Valuing Annuities: Complexity and Choice Bracketing

Abstract This paper examines two behavioral factors that diminish people's ability to value a lifetime income stream or annuity, drawing on a randomized experiment with about 4,000 adults in a U.S. nationally representative sample. We find that increasing the complexity of the annuity choice reduces respondents' ability to value the annuity, measured by the difference between the sell and buy values they assign to the annuity. When we limit narrow choice bracketing by inducing people to think first about how quickly or slowly to spend down assets in retirement, their ability to value an annuity increases.

Adult age differences in monetary decisions with real and hypothetical reward

Abstract Age differences in monetary decisions may emerge because younger and older adults perceive the value of outcomes differently. Yet, age‐differential effects of monetary rewards on decisions are not well understood. Most laboratory studies on aging and decision making have used scenarios in which rewards were merely hypothetical (decisions did not have any real consequences) or in which only small amounts of money were at stake. In the current study, we compared younger adults' (20–29 years) and older adults' (61–82 years) decisions in probabilistic choice problems with real or hypothetical rewards. Decision‐contingent rewards were in a typical range of previous studies (gains of up to ~4.25 USD) or substantially scaled up (gains of up to ~85 USD per participant). Reward type (real vs. hypothetical) affected decision quality, including value maximization, switching between options, and dominance violations (choices of an option that was inferior to another option in all respects). Decision quality was markedly better with real than hypothetical rewards in older adults and correlated with numeracy in both age groups. However, we found no evidence that reward type affected people's risk preferences. Overall, the findings portray a fairly positive picture regarding the use of hypothetical scenarios to assess preferences: With carefully prepared instructions, people from different age groups indicate preferences in hypothetical scenarios that match their decisions with real and much higher rewards. One advantage of using real rewards is that they help to reduce decision noise.

A Theory of Narrow Thinking

Abstract Unlike in standard models, decision makers often narrowly bracket and make each decision in isolation. I develop a new approach, which I term narrow thinking, to systematically model narrow bracketing. The definition of narrow thinking is that different decisions are based on different, non-nested, information. As a result, the narrow thinker makes each decision with imperfect knowledge of other decisions and faces difficulties coordinating her multiple decisions. The narrow thinker effectively cares less about her other decisions when making each decision. The main application of narrow thinking is to provide a smooth model of mental accounting without requiring the decision maker to have explicit budgets. My approach generates unique predictions about how the degree of mental accounting depends on expenditure shares and cognitive limitations. It also illustrates how narrow bracketing and mental accounting can be explained by the same underlying friction.

How Field Experiments in Economics Can Complement Psychological Research on Judgment Biases

This review summarizes results of field experiments examining individual behaviors across several market settings—from open-air markets to rideshare markets to tax-compliance markets—where people sort themselves into market roles wherein they make consequential decisions. Using three distinct examples from my own research on the endowment effect, left-digit bias, and omission bias, I showcase how field experiments can help researchers understand mediators, heterogeneity, and causal moderation involved in judgment biases in the field. In this manner, the review highlights that economic field experiments can serve an invaluable intellectual role alongside traditional laboratory research.

Putting nudges in perspective

Conventional economic policy focuses on ‘economic’ solutions (e.g. taxes, incentives, regulation) to problems caused by market-level factors such as externalities, misaligned incentives and information asymmetries. By contrast, ‘nudges’ provide behavioural solutions to problems that have generally been assumed to originate from limitations in human decision making, such as present bias. While policy-makers have good reason for exploiting the power of nudges, we argue that these extremes leave open a large space of policy options that have received less attention in the academic literature. First, there is no reason that solution and problem need have the same theoretical basis: there are promising behavioural solutions to problems that have causes that are well explained by traditional economics, and conventional economic solutions often offer the best line of attack on problems of behavioural origin. Second, there is a wide range of hybrid policy actions with both economic and behavioural components (e.g. framing a tax or incentive in a specific way), and there exist many societal problems – perhaps the majority – that arise from both economic and behavioural factors (e.g. firms’ exploitation of consumers’ behavioural biases). This paper aims to remind policy-makers that behavioural economics can influence policy in a variety of ways, of which nudges are the most prominent but not necessarily the most powerful.

Behavioural economics, consumer behaviour and consumer policy: state of the art

Counter to the traditional assumption of neoclassical economics that individuals are rational Homo oeconomici that always seek to maximize their utility and follow their ‘true’ preferences, research in behavioural economics has demonstrated that people's judgements and decisions are often subject to systematic biases and heuristics, and are strongly dependent on the context of the decision. In this article, we briefly review the transition of research from neoclassical economics to behavioural economics, and discuss how the latter has influenced research in consumer behaviour and consumer policy. In particular, we discuss the impacts of key principles such as status quo bias, the endowment effect, mental accounting and the sunk-cost effect, other heuristics and biases related to availability, salience, the anchoring effect and simplicity rules, as well as the effects of other supposedly irrelevant factors such as music, temperature and physical markers on consumers’ decisions. These principles not only add significantly to research on consumer behaviour – they also offer readily available practical implications for consumer policy to nudge behaviour in beneficial directions in consumption domains including financial decision making, product choice, healthy eating and sustainable consumption.

The persistence of cognitive biases in financial decisions across economic groups

While economic inequality continues to rise within countries, efforts to address it have been largely ineffective, particularly those involving behavioral approaches. It is often implied but not tested that choice patterns among low-income individuals may be a factor impeding behavioral interventions aimed at improving upward economic mobility. To test this, we assessed rates of ten cognitive biases across nearly 5000 participants from 27 countries. Our analyses were primarily focused on 1458 individuals that were either low-income adults or individuals who grew up in disadvantaged households but had above-average financial well-being as adults, known as positive deviants. Using discrete and complex models, we find evidence of no differences within or between groups or countries. We therefore conclude that choices impeded by cognitive biases alone cannot explain why some individuals do not experience upward economic mobility. Policies must combine both behavioral and structural interventions to improve financial well-being across populations.

Complexity and biases

We examine experimentally how complexity affects decision-making, when individuals choose among different products with varying benefits and costs. We find that complexity in costs leads to choosing a high-benefit product, with high costs and overall lower payoffs. In contrast, when complexity is in the benefits of the product, we cannot reject the hypothesis of random mistakes. We also examine the role of heterogeneous complexity. We find that individuals still (mistakenly) choose the high-benefit but costly product, even if cheaper and simple products are available. Our results suggest that salience is a main driver of choices under different forms of complexity.

The Exception Is the Rule: Underestimating and Overspending on Exceptional Expenses

Abstract Purchases fall along a continuum from ordinary (common or frequent) to exceptional (unusual or infrequent), with many of the largest expenses (e.g., electronics, celebrations) being the most exceptional. Across seven studies, we show that, while people are fairly adept at budgeting and predicting how much they will spend on ordinary items, they both underestimate their spending on exceptional purchases overall and overspend on each individual purchase. Based on the principles of mental accounting and choice bracketing, we show that this discrepancy arises in part because consumers categorize exceptional expenses too narrowly, construing each as a unique occurrence and consequently overspending across a series of discretely exceptional expenses. We conclude by proposing an intervention that diminishes this tendency by helping consumers consider their spending on exceptional items as part of a larger set of purchases.

A Generalizable Scale of Propensity to Plan: The Long and the Short of Planning for Time and for Money

Abstract. Planning has pronounced effects on consumer behavior and intertemporal choice. We develop a six-item scale measuring individual differences in pr

A sampling model of social judgment.

Integrative experiments identify how punishment affects welfare in public goods games

Despite decades of research, the conditions under which punishment promotes cooperation remain unclear. Through an integrative experiment varying 14 design parameters of public goods games across 360 experimental conditions (147,618 decisions from 7100 participants), we reveal substantial heterogeneity in punishment effectiveness: Its impact on welfare ranges from 43% improvement to 44% reduction depending on the game parameters. To characterize these patterns, we developed models that outperformed human forecasters in predicting punishment effectiveness in new experiments. Communication emerges as the most important factor, followed by contribution framing (opt out versus opt in), contribution type (variable versus all-or-nothing), game length, and outcome visibility, though these factors often interact. The results reframe the debate from whether punishment works to when it does, demonstrating how integrative experiments enable discovery of generalizable patterns in social phenomena. , Editor’s summary People face conflicts between maximizing personal gain versus supporting collective interests. If we cooperatively recycle or donate to charities, it benefits society, but it also costs us time and resources that could be selfishly preserved for ourselves. We impose penalties to deter those undesirable or selfish behaviors, but under what conditions do punishments or penalties effectively modify behavior to benefit group welfare? Alsobay et al . systematically and simultaneously varied 14 factors together instead of in isolation. Punishment was unequivocally most effective when paired with consistent communication, particularly over time. Another effective factor was “opting out” or withdrawing some, but not all, endowments already in the public fund. These methodological advances revealed when, rather than whether, punishment works. —Ekeoma Uzogara , INTRODUCTION Human societies face many situations where individual and collective interests conflict, often referred to as social dilemmas. Costly peer punishment has been studied for more than 25 years in public goods games (stylized behavioral experiments in which individuals decide how much to contribute to a shared pool that benefits everyone) as a mechanism to promote cooperation. Prior research has identified many contextual factors that moderate punishment’s effectiveness, including game length, communication, group size, punishment cost, and so on. However, the specific conditions under which punishment improves group welfare remain unclear. RATIONALE We argue that this lack of clarity derives from the dominant experimental paradigm, in which any given study manipulates only one or a few theoretically informed factors. Because such studies differ in many ways (different experimental procedures, populations), their results are often difficult to compare or integrate. Consequently, one can list many factors that have some effect, but cannot say how much each matters relative to the others, or how they work together, and as a result, cannot predict when punishment will help or harm welfare in new settings. To address this fundamental knowledge gap, we use an integrative experimental design and systematically vary 14 parameters across 360 conditions (147,618 decisions from 7100 participants) to elucidate when punishment improves versus undermines welfare in public goods games, which factors matter most, and how they interact. RESULTS The effect of punishment on welfare ranged from 43% improvement to 44% reduction depending on the specific combination of game parameters. To characterize this heterogeneity, we trained a model that outperformed all 553 human forecasters (laypeople and experts) in predicting whether punishment would help or harm welfare in new experiments. Communication emerged as roughly three times more important than any other factor, followed by contribution framing (opt in versus opt out), contribution type (variable versus all-or-nothing), game length, and peer outcome visibility (whether participants can see others’ earnings). These factors often interact. For example, longer games enhance punishment’s effectiveness only when communication is available, and contribution framing effects depend on both contribution type and outcome visibility. CONCLUSION Many phenomena in social science are shaped by many factors whose interactions are consequential, yet the dominant experimental paradigm often limits its inquiry to “does a given effect exist?” and examines hypothesized factors in isolation. As a result, research programs can accumulate many partial explanations without a clear picture of how they combine to determine outcomes across settings. Knowing that factors matter individually is fundamentally different from knowing how much each matters and how they interact. The integrative approach implemented here offers one way forward. It varies many factors simultaneously within a shared design space, evaluates models by their predictive accuracy on new experiments, and probes those models to constrain and develop theory. Our hope is that integrative experiment designs, combined with models that integrate prediction and explanation, represent a path toward more cumulative social science. Integrative experiment reveals when punishment helps versus harms. We systematically varied 14 design parameters across 360 experimental conditions. The effect of punishment on cooperation efficiency ranged from −44% to +43% depending on the specific game parameters. Communication emerged as three times more important than any other factor, followed by contribution framing, contribution type, and game length.

Mindful Judgment and Decision Making

A full range of psychological processes has been put into play to explain judgment and choice phenomena. Complementing work on attention, information integration, and learning, decision research over the past 10 years has also examined the effects of goals, mental representation, and memory processes. In addition to deliberative processes, automatic processes have gotten closer attention, and the emotions revolution has put affective processes on a footing equal to cognitive ones. Psychological process models provide natural predictions about individual differences and lifespan changes and integrate across judgment and decision making (JDM) phenomena. “Mindful” JDM research leverages our knowledge about psychological processes into causal explanations for important judgment and choice regularities, emphasizing the adaptive use of an abundance of processing alternatives. Such explanations supplement and support existing mathematical descriptions of phenomena such as loss aversion or hyperbolic discounting. Unlike such descriptions, they also provide entry points for interventions designed to help people overcome judgments or choices considered undesirable.

The Preference Survey Module: A Validated Instrument for Measuring Risk, Time, and Social Preferences

Incentivized choice experiments are a key approach to measuring preferences in economics but are also costly. Survey measures are a low-cost alternative but can suffer from additional forms of measurement error due to their hypothetical nature. This paper seeks to leverage the strengths of both approaches by proposing a new survey module on risk aversion, time discounting, trust, altruism, positive and negative reciprocity, in which survey items are selected based on ability to predict choices in corresponding, incentivized experiments. The methodology and results provided in the paper can also potentially provide a model for researchers who have specific requirements and want to design their own modules. This paper was accepted by Yan Chen, behavioral economics and decision analysis. Funding: The project received funding from the European Research Council under the European Union’s Seventh Framework Programme (FP7-2007-2013) [Grant 209214]. A. Falk and T. Dohmen acknowledge funding from the Deutsche Forschungsgemeinschaft (German Research Foundation) [Grant CRC TR 224 (Project A01)] and Germany’s Excellence Strategy [Grant EXC 2126/1-390838866]. Supplemental Material: Data and the online appendices are available at https://doi.org/10.1287/mnsc.2022.4455 .