Understanding Bracketing Effects To Make Better Decisions
You don’t realise the full consequences of your actions
Framing is a term used in behavioural economics to describe the way in which options are presented to people. In theory, whenever we make a decision, we should be trying to maximise our utility, which basically means, we make the choice that benefits us the most overall. It shouldn’t really matter how the choices are presented. However, in reality, this can largely affect the option we choose, sometimes leading us to make poor decisions that don’t benefit us overall.
It’s important to be aware of the way different types of frames are used in your day to day life, or you’ll end up unconsciously making poor decisions.
This will be the first in a series of articles on the different types of framing that are common in our everyday lives.
Bracketing Effects
Bracketing relates to the way in which we evaluate our decisions. When we evaluate each decision separately, as an isolated instance, we call this narrow bracketing. When we evaluate our decisions together as a whole, we call this broad bracketing. Narrow bracketing only allows us to see the immediate individual effects of a given choice. For example, If I were using narrow brackets, I might decide to play video games today, then tomorrow, then the next day; but I am evaluating the effects of each choice separately. Whereas broad bracketing looks at the effects of each choice in an integrated way. So I would be looking at the effects of playing video games 3 times this week as a whole. This allows you to see how each choice affects the other choices and the total effect of all choices together
Most people frame things within narrow brackets, which leads to sub-optimal decisions as it doesn’t allow people to see the big picture effects.
Adding-up effects: This bracketing effect occurs when you make individual decisions within narrow brackets that have seemingly inconsequential effects, but when all the choices are looked at together, through broad brackets, they have significant consequences. For example, If you eat a load of ice cream today it’s probably not going to be that bad for your diet plan. If you then do it again in two days, again not that big a deal. Maybe at the end of the week, your sweet tooth comes back and you decide to have some more. Each day you are only looking at eating that ice cream as an isolated incident. So at the end of the week when you decide to binge on ice cream, it’s only just one bad day, you aren’t taking into account the other 2 days in which you also cheated on your diet. If you do this over a period of a few months or years, then you’re going to end up fat and unhealthy with possible tooth problems. Now, if you were bracketing broadly, you wouldn’t look at each instance as an isolated event, you would bracket all of them together and evaluate the effects of eating ice cream 3/4 times a week over the next year. This abstraction allows you to see how your choices add up, which you can’t do when narrow bracketing. This is how people end up procrastinating for years, each time they do it, it’s always just 1 more day.
Trade-offs: There are some instances where the effects of one choice can outweigh the effects of another, so although it wouldn’t make sense to make each choice individually, it makes sense when you think about them in conjunction with each other. Keeping in line with the ice cream example, if you were trying to lose weight but your friends were going out for some ice cream, you might say no if you were looking at it from a narrow bracket. But if you were looking at all of your decisions together, you could offset that bad ice cream day by having a day where you fast later in the week. So the decision to go out for ice cream today would now make sense.
Taste change: Have you ever eaten something, then developed a newfound daily craving for that type of food? Have you ever eaten something which has made you thirsty shortly after? This is because what we choose now can change our tastes in the future. When choices are bracketed together, we are more likely to realise how a choice of one alternative will influence our desire for future alternatives.
Motivational bracketing: This is where people adopt a particular bracket in order to accomplish some goal. Take for instance someone who is trying to give up alcohol; if they were to use broad brackets the task would seem quite daunting, the idea of going 1 year or more without alcohol could stop them dead in their tracks. However, If they were to just take it one day at a time, they may make a lot more progress. This is one of the few instances where it is advantageous to use narrow brackets.
Benartzi and Thaler (1999) ran an experiment on workers’ investment choices for their pension. They surveyed recent employees at a US university and asked them to choose between two investments for their pension. When shown the expected one-year returns, the allocation of stocks was 41%. However, when shown the 30-year returns the allocation of stocks was between 75% — 85%. This illustrates just how significant the bracketing effect was. When shown the one year return most people didn’t invest, they were using narrow brackets. But the reality is, you pay into that pension for 30 years anyway, so the one year return shouldn’t have deterred them too much. They couldn’t see that over the 30 years the gains and losses would balance out making it more rational to invest. They actually had to be shown the 30-year returns in order to invest because most people don’t naturally evaluate within broad brackets.
It’s extremely important to be aware of these various bracketing effects because they allow us to incorporate these implicit effects that we aren’t normally aware of.
We only experience things one moment at a time, we make each choice one at a time, we don’t actually make 10 decisions in one given moment, so it’s less intuitive for us to evaluate our decisions broadly. However, we do still experience the accumulated consequences of those decisions.
This is a large reason why people often don’t get what they want in life. Because there are these accumulated implicit consequences to our actions that we aren’t aware of. You can’t actually go back and pinpoint the exact moment where you messed up, because it wasn’t any single moment. You don’t know the exact moment you became addicted to cigarettes. Which cigarette was it that did you in? The 15th? The 100th? In the same way, you can’t pinpoint the exact moment or meal that made you overweight. These accumulated implicit effects are not tangible, but their effects are significant.
Most people aren’t purposefully making bad decisions. When the average person makes a choice, they aren’t thinking “yep, this is going to lead to me being, overweight, broke, and addicted.” The truth is, if most of us actually understood the full implicit costs of our actions, how they all lean into each other causing big picture consequences, we wouldn’t do them.
It’s like someone who goes to buy a hot tub for the summer. It costs £400 which they can comfortably afford. What they aren’t aware of, is that there is a shipping charge of £50 and VAT/ Sales tax to add on. In addition, there is a monthly maintenance cost to keep it up and running. If the person had known the full cost beforehand, they might not have bought it.
This type of thing happens to us all the time. Because we aren’t bracketing wide enough, we just don’t even realise all the implicit costs of our actions. We do things thinking that the costs are low when in actual fact they’re 10x higher than we thought.
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