2.1 Literature review from 1994 to 2003
First of all, Satz and Ferejohn (1994) showed that bounded rationality is roughly a psychological situation, where our minds try to depict the best rational choice. The scholars should choose one of two ways either define rationality by the people's choices and the cohesion aspects with that or develop a way how can conclude people's decisions and maximize their utility. Likewise, Loewenstein (1999) argued that taking a broad decision would be costly, daunting, and consume people’s precious time as a consequence of wrong decisions. Taking social funds as an example, the creation of a basic strategy for government pension funds might be crucial for reducing uncertainty since many people avoid making complicated choices in the context of ambiguity. In other words, the case is that several individuals have a high-risk aversion; they are much more concerned with losses than with comparable profits. In contrast, Read, Loewenstein and Rabin (1999) contended that there are determinants of our choices, which are cognitive limitation, heuristics, and the motivation toward a goal. Narrowing choice can boost motivation, in some cases where an individual's aims appear feasible and hence more achievable. Also, ignoring the long-term impact seems to be helpful at the first, but these aggregations of separated decisions would result in worse results. “Broad bracketing” magnify the benefits since people now have a big thought about their directions while "narrow bracketing" is like a no-guided-walking path.
With this in mind, transactions are frequently evaluated in the brain one at a time, the emphasis is on alterations that would happen, not as anticipated by the utility theory on levels of wealth, and also losing pains more than winning brings joy. Furthermore, “narrow bracketing” might discourage risk-taking. And, people seek to vary their selections among numerous possibilities according to heuristics (Thaler 1999). It appears feasible that the advancement could be appreciated in itself when considering bracketing to make a view. However, individuals need heuristics for judging the options. (Frederick et al. 2002). For more clarification, heuristics is known by scholars as the ready information in minds, which could be applied in an uncertain situation, where humans’ brains handle many tasks simultaneously from experiences. And, cognition is a compound of intuition and perception which is reliant on emotion and logic and is controlled by neutrality and rules. Using heuristics by giving judgments and estimations intuitively is helpful but sometimes leads to wrongs (Kahneman 2003).
2.2 Literature review from 2004 to 2013
Importantly, Stracca (2004) advocated the idea that employing emotions and heuristics to bracket narrowly and following the preferences as a reference point are anomalies in behavioral finance that affect market prices. On the other hand, Kőszegi and Rabin (2007) explained that gain-loss feelings and consuming utility either fall under the category of the hedonic impact of choice. To connect the dots, people misunderstand how will adapt to a benchmark point such as previous events or persons as a model, resulting in overestimating the importance of gain-loss feelings in decision-making and bracketing narrowly. Besides, the unawareness may cause them to take risks. Emotions and experiencing risks make people's loss aversive. While Brocas and Carrillo (2008) had a different view, they misbelief of the “narrow bracketing” as it is not the visible definition, and other physical factors could affect an individual's ability for long planning. Adding to that, it is like the equilibrium, experiments showed that a strict definition causes consumers to overconsume some items and under-consume others, and a new explanation is put out for this tendency. Similarly, numerous reasoning and decision-making occurrences, such as auto-emotional responses, conceptual reasoning, or intelligent action sequences, have been explained by dual processes, which include biological systems of origins and philosophical systems with nodes and counterargument models, according to (Weber and Johnson 2009). Not so different, Loewenstein, Rick and Cohen (2008) emphasized that some individuals have the cognitive ability to perceive that aviation crashes are extremely unlikely, yet their emotions prohibit them from operating on this assessment. Those with phobias are constantly mindful that something is objectively harmless but hold back from taking action because of their concerns. On the contrary, people are cunningly exploitative of their loss aversion, exaggerate discounting, and have the propensity to favor the default choice. Consequently, it appears reasonable to conclude that this contributed to behavioral economics' benefits. However, it is more difficult to demonstrate that these methods caused the recorded behaviors (Elster 2009). Narrow bracketing in some circumstances is not an error. Because of this, attitudes toward little risks appear to call for narrow bracketing, disregarding that the existing risk will be merged with significant other hazards; so it is not a cognitive flaw, as some have argued. Nevertheless, Koszegi and Rabin (2009) admitted the reality of “narrow bracketing” as it is in some circumstances, not an error, consequently, attitudes toward little risks appear to call for “narrow bracketing”, disregarding that the existing risk will be merged with significant other hazards; so it is not a cognitive flaw, as some have argued. Adding another thing, in light of the information’s appearance people make different decisions, and their perceptions, and motivation change when the information is presented to them. In Contrast, failing to integrate decisions can cause a decision-maker to incur mistakes within a very range of preferences. A welfare-estimation loss resulting from narrow bracketing could gauge the utility drop arising from the said preferences (Rabin and Weizsäcker 2009). Giving a more generalized idea, loss aversion is induced by the perspective and bracketing effects. Loss aversion and the desire to trade may be affected by a person's emotional attachment and cognitive perspective (Sokol-Hessner et al. 2009). Furthermore, Mukhopadhyay and Johar (2009) did investigate the narrow bracketing effect, limited cognition between refraining and offering a product, when people first are abstained from a kind of consumption for a specific time and they had given a clue, then it is offered. They typically pleasure themselves by buying the tempting item immediately. Likewise, throughout economic systems, cognitive ability and preferences are the two main factors that influence choice. Or, it is the interchange between impartial cognition toward risk with a far view and emotional preferences to avoid risk (Dohmen et al. 2010). Indeed, people may be encouraged to invest more or consume less over the long run depending on broad bracketing if the Policymakers invent techniques to help people with futuristic saving (Knoll 2011). Along with that, achieving the planned goals should eliminate rationalization (giving excuses for bad daily decisions), and should interpret the determined big goal in the cognition to achieve by considering individual decisions as a package (Fujita and Roberts 2010). Importantly, looking at risk aversive and bracketing, gender is a factor. Bracketing the decisions of the partners would give different choices. Females could make more powerful decisions over time than males (De Palma et al. 2011). More controversially, Pflug, Pichler and Wozabal (2012) stated that it is not cognitively biased to buy a variety of goods at once under uncertainty, it is a way to eliminate risk. Nevertheless, yet when given the chance, individuals frequently struggle to bracket broadly (Sussman and Alter 2012). Sometimes, it is a matter of how the information being introduced to individuals, in this essence, excessively separated information each time, disrupting the consumers' thinking and affecting decisions (Wilkinson-Ryan, 2013).
2.3 Literature review from 2014 to 2022
Here and there, bracketing could alter the kind of equities selected (bonds or stocks), and traders switch from making more critical decisions to making decisions that have lower yields but are safer. Bracketing could also contribute to the shift in judgment brought on by cognitive deficits (Heyes et al. 2016). Taking stock as an example of people experiencing risk, in this scenario, after losing stock, people are more inclined to follow their losses and take additional risks to compensate for the unrealized risk, which is a means of exchange that has not yet been moved out of the risk-taker account. However, after realizing the loss in wealth, they refrain from taking additional risks in the future (Imas 2016). Not only imagining the loss but also Abeler and Marklein (2015) showed that narrow bracketing heuristics that individuals employ even if there is no root problem. They see the mind as a pyramid of mental accounts for dividing the set of values sequentially and spending accordingly. Despite that, persons’ preferences for the future can be enhanced by financial education and enhancing their complexity in decisions and knowledge of intertemporal trade-offs. Intertemporal choice is a key factor in several crucial economic decisions, including those relating to investment, education, and savings (Lührmann et al. 2018). In the same way, Gächter, Johnson and Herrmann (2022) assured that the educational level encourages taking risks. While wealth, income, and age discourage that. All in all, the current research about narrow bracketing is incomplete or simple and does not comprise all areas. For example, how could you assume that wealth and experiences affect people's preferences, or could you assume risk stability, or how could you measure people's welfare? (O’donoghue and Sprenger 2018).