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Rabin, Matthew, and
Georg Weizsacker. 2009. "Narrow Bracketing and Dominated Choices."
,
99(4): 1508-43.
Show Article Details
DOI: 10.1257/aer.99.4.1508
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)
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Authors:
Rabin, Matthew (U CA, Berkeley)
Weizsacker, Georg (DIW Berlin)
JEL Classifications:
D12: Consumer Economics: Empirical Analysis
D81: Criteria for Decision-Making under Risk and Uncertainty
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