How Subjective Grouping of Options Influences Choice and Allocation: Diversification Bias and the Phenomenon of Partition Dependence

The authors argue that people's tendency to diversify their allocations of money and consumption choices over alternatives gives rise to decisions that vary systematically with the subjective grouping of available options. These subjective groupings are influenced by subtle variations in the presentation of options or elicitation of preferences. Studies 1-4 demonstrate such "partition dependence" in allocations of money to beneficiaries, consumption experiences to future time periods, and choices to a menu of consumption options. Study 5 documents weaker partition dependence among individuals with greater relevant experience discriminating among options, and Study 6 shows that the effect is attenuated among participants with stronger or more accessible intrinsic preferences.