Research has shown that risk tolerance increases when multiple decisions and associated outcomes are presented together in a broader “bracket” rather than one at a time. The present studies disentangle the influence of problem bracketing (presenting multiple investment options together) from that of outcome bracketing (presenting the aggregated outcomes of multiple decisions), factors which have been deliberately confounded in previous research. In the standard version of the bracketing task, in which participants decide how much of an initial endowment to invest into each in a series of repeated, identical gambles, we find a problem bracketing effect but not an outcome bracketing effect. However, this pattern of results does not generalize to the cases of non-identical gambles nor discrete choice, where we fail to find the standard bracketing effect.

This paper presents two studies on narrow bracketing and myopic loss aversion. The first study shows that the tendency to segregate multiple gambles is eliminated if subjects face a certainty equivalent or a probability equivalent task instead of a binary choice. The second study argues that the behavioral differences previously attributed entirely to myopic loss aversion are partly because long-term return properties are simply easier to grasp if the return information is already provided in the form of long-term returns rather than one-year returns. Both results may be related to recent failures to replicate myopic loss aversion. When the choice situation is structured in such a way that it draws respondents’ attention to the final outcome distribution and/or if severe misestimations of long-term returns based on short-term return information are unlikely, behavioral differences consistent with myopic loss aversion are less likely to be observed.

The effect of choice bracketing — the consideration of repeated decisions as a set versus in isolation — has important implications for products that are inherently time-sensitive and entail varying levels of risk, including retirement accounts, insurance purchases, and lottery preferences. We show that broader choice brackets lead to more optimal risk preferences across all risk types, including negative expected value and pure-loss gambles, suggesting that broad decision framing can help individuals make better choices over risks more generally. We also examine the mechanism behind these bracketing effects. We find that bracketing effects work by attenuating (magnifying) the weight placed on potential losses for positive EV (non-positive EV) gambles and by providing aggregated outcomes that might not otherwise be calculated. Thus, decision frames that provide probability distributions or aggregated outcomes can help individuals maximize expected value across different types of risky prospects.