On the Importance of Context in Sequential Decision-Making

Abstract

We experimentally investigate whether framing an individual-choice decision in a market setting results in a different outcome than when the decision is described in a context-free frame. We further explore whether the context effect is triggered by the frame itself or whether a richer descriptive content is required to establish familiarity with the decision-making environment. Understanding what constitutes context is central to formulating practical recommendations aiming to improve the quality of individual decisions. Our results show that framing a sequential search problem as selling houses leads to better decisions than a context-free frame. Manipulating whether or not the framed decision-making scenario includes a description of the house, which would be naturally available in a real estate market, does not impact the length of search or the total earnings.

On the Importance of Context in Sequential Search

“…In reality, search is costly and a higher accepted offer from longer search may not necessarily result in a higher net payoff. See Hsiao et al () for evidence of how time search cost influences the length of search and overall payoffs.…”