Broad Bracketing for Low Probability Events
Individuals tend to underprepare for rare, catastrophic events because of biases in risk perception. A simple form of broad bracketing—presenting the cumulative probability of loss over a longer time horizon—has the potential to alleviate these barriers to risk perception and increase protective actions such as purchasing flood insurance. However, it is an open question whether broad bracketing effects last over time: There is evidence that descriptive probability information is ignored when decisions are made from “experience” (repeatedly and in the face of feedback), which describes many protective decisions. Across six incentive-compatible experiments with high stakes, we find that the broad bracketing effect does not disappear or change size when decisions are made from experience. We also advance our understanding of the mechanisms underlying broad bracketing, finding that, while cumulative probability size is a strong driver of the effect, this is dampened for larger brackets which lead people to be less sensitive to probability size.
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Copy CitationShereen J. Chaudhry, Michael Hand, and Howard Kunreuther, "Broad Bracketing for Low Probability Events," NBER Working Paper 27319 (2020), https://doi.org/10.3386/w27319.Download Citation
Published Versions
Shereen J. Chaudhry & Michael Hand & Howard Kunreuther, 2020. "Broad bracketing for low probability events," Journal of Risk and Uncertainty, vol 61(3), pages 211-244.
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