“Choice Bracketing” Read, Loewenstein & Rabin (1999)
This paper follows up on a paper by the first two authors with a more encompassing theoretical account. The idea is that preferences are susceptible to how broad or narrow the decision context is. People act differently when they consider the sum consequences of a number of decisions, compared to when they consider the merits and weaknesses of only a single decision at a time. For example, the authors say that although the individual decision to smoke each cigarette might seen inconsequential, bracketing over a year’s consumption would make the costs much more salient. When it comes to investing, I think that the common bias of insufficient diversification might be caused by choice brackets that are too narrow.
But for this post I’m going to stray slightly off-topic and talk about how choice bracketing might affect self-control issues surrounding potential addictions. My view is that in many cases not only are we unable to voluntarily choose our own brackets, but that outside forces prevent us from using brackets that are beneficially narrow.
The authors discuss how Alcohol Anonymous advises alcoholics to hand their problem “one day at a time”. The implication being that because a lifetime’s non-drinking might seem inconceivable, and hence doomed to fail, that a narrower and more achievable bracket might be helpful. Interestingly this deviates from the recommendations of hyperbolic discounting models, which recommend broad brackets for addictive substances.
My personal take is that with many addictive substances we are unable to choose our own brackets; instead, they are set by the product’s seller. It seems fairly common-sense to me that for many self-control issues we might lack the cognitive power to choose our own bracket size. Take smoking as an example. Cigarettes are most commonly purchased in packs of 10 or 20 (at least in the UK, some friends tell me that 10-packs are not sold in their country). The size of a purchased product then becomes the inevitable bracket. If I’ve bought 20 cigarettes then I’m not going to “waste” half of my purchase by throwing them away: I’m going to smoke them all (even if the last 10 cigarettes provide me a negative marginal utility).
Now consider the dilemma of a smoker trying to quit. We can think of their problem as lots of small decisions, spread out through time, not to smoke. If they at any time fail, then the number of cigarettes that they purchase will be bracketed together and inevitably smoked. Therefore, their decision problem is made much harder if cigarettes are sold in large default packets. They only have to fail on one occasion before they embark on a protracted bout of smoking. Now consider a hypothetical world where cigarettes can only be bought individually: now their resolve has to fail on 20 separate occasions before an equal amount of damage is done.
There are many instances when sellers of addictive products adopt large brackets. The brackets they push then become the consumer’s inevitable bracket and exacerbate self-control issues. Junk food sellers use sell large portions at a discount. My personal bracket problem is with Domino’s pizza: they offer “any-size” pizzas for a given price such as £9.99. Ordering a medium-size pizza at this price seems like a waste, but buying a large-size pizza leads to me eating far too much. Bulk-buying of alcohol at supermarkets seems like a great saving but leads to excessive drunkenness (OK – this is no longer about me). Gambling companies use incentive schemes to bracket many individual gambles together. And cigarettes are of course sold in fairly wide brackets.
My opinion is that many self-control issues could be helped if narrower brackets were encouraged by regulators, either with the price system, outright limitations on purchases, or hurdles to bulk-buying (such as the filling out of tedious forms). Some of these actions might seem a bit too interventionist for hardcore libertarian paternalists. But, given that sellers of these products are intentionally adopting broad brackets – my favourite “dark nudges” – I think such action would be justified.