Partition Dependence in Decision Analysis, Resource Allocation, and Consumer Choice

In this chapter we explore a wide range of judgment and decision tasks in which people are called on to allocate a scarce resource (e.g., money, choices, belief) over a fixed set of possibilities (e.g., investment opportunities, consumption options, events). We observe that in these situations people tend to invoke maximum entropy heuristics in which they are biased toward even allocation. Moreover, we argue that before applying these heuristics, decision makers subjectively partition the set of options into groups over which they apply even allocation. As a result, allocations vary systematically with the particular partition that people happen to invoke, a phenomenon called partition dependence. We review evidence for maximum entropy heuristics and partition dependence in the following domains: (1) decision analysis in which degree of belief and importance weights must be distributed among possible events and attributes, respectively; (2) managerial decision making in which money and other organizational resources are allocated among risky projects, divisions, and organizational stakeholders; and (3) consumer choice in which individuals make selections among various consumption goods and consumption time periods.