Many important economic outcomes result from the cumulative effects of smaller choices and events, so the best outcomes require, minimally, accounting for total outcomes so far. We formally show that narrow bracketing — the neglect of such accounting — is costly and identified if and only if the willingness to pay for an option varies across all single choice sets, unifying, extending, and generalizing prior results.
We empirically document narrow bracketing in work choices in two pre-registered experiments. In the first experiment, bracketing due to separate or combined choice presentations changes average reservation wages by 13-28%. In this experiment, broad bracketing is so simple to implement that narrow bracketing is hard to reconcile with optimal conservation of cognitive resources. In a second experiment, we test for choice bracketing in three different domains: violations of WARP, linear and probability. Among them, the highest share of narrow bracketing happens in linear.
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