Why We Make Different Choices When Faced with the Same Problem

A jar of jam on a supermarket shelf is, above all, a product with a price tag. The same jam, served in an elegant jar on a wooden cutting board, can become an experience to savor. The contents haven’t changed. Yet, faced with the second presentation, we might worry less about the cost and much more about the quality.

Similar situations can be found everywhere. Stocks may appear as an investment opportunity or as a gamble. A company ranked second may seem like a loser or a determined challenger. Even a gun kept at home can be seen as protection against intruders or as a source of accidents.

Why does the same issue take on a different face depending on how it is presented, where we come across it, or the experiences we have accumulated?

An answer comes from Nicola Gennaioli of the Department of Finance at Bocconi and an affiliate of IGIER, the Innocenzo Gasparini Institute for Economic Research, along with Pedro Bordalo of Oxford University, Giacomo Lanzani of the University of California, Berkeley, and Andrei Shleifer of Harvard University. In the paper “A Cognitive Theory of Reasoning and Choice,” published in the Quarterly Journal of Economics, the four economists propose a theory that focuses on an often-overlooked step: before making a choice, we must understand what kind of problem we are facing.

We recognize the problem first, then we decide

Traditional economics tends to link decisions to individual preferences and available information. If a person changes their choice, it is assumed that their tastes, expectations, or the data at their disposal have changed. The new model suggests something different. Even when preferences and information remain identical, the mental representation of the problem can change: some aspects attract attention, while others fade into the background.

The starting point revolves around two questions:

“What kind of problem is it? What matters for solving it?”

When faced with a choice, the mind searches among previously encountered situations for a category that resembles the current problem. Once identified, that category determines which characteristics deserve attention.

The process occurs in two phases. In the first, the person “recognizes” the problem by comparing it with past experiences and contextual clues: the place, the time, the language used, the packaging, or the presence of certain visual elements. In the second, the person makes a decision based on that mental representation. The context, therefore, does not need to provide new information to influence behavior. It can simply change the question we believe we need to solve.

Buying or consuming: the case of jam

The authors illustrate this mechanism by distinguishing between two mental categories: buying and consuming.

When the choice is recognized as a purchase, attention focuses primarily on price. When it is recognized as a consumption experience, taste, quality, and expected pleasure come to the fore. The shift from one category to the other can produce a significant change in willingness to pay, even if product and price have remained exactly the same. The authors describe the process as follows:

“By shaping how the DM [Decision Maker] thinks about the problem, irrelevant context and past experiences create systematic heterogeneity and instability in the ’s choice, holding tastes and information constant.”

The context defined as “irrelevant” does not directly contribute to the economic value of the good. An elegant jar does not necessarily make the jam better. However, it can bring the situation closer to experiences associated with pleasure and hospitality, distancing it from those linked to everyday shopping. The result is lower price sensitivity.

This is what can happen in a café furnished like a living room, where you don’t just buy a cup of coffee but step into an atmosphere. Or with a branded bottled water whose advertising evokes glaciers and tropical islands: elements that shift the focus toward purity and freshness, mentally differentiating an otherwise ordinary product.

The theory thus offers a cognitive explanation for “decommoditization”: a standard product ceases to be evaluated primarily by its price because the context turns it, in the consumer’s mind, into an experience.

Past experiences don’t just change what we know

The model isn’t limited to advertising. Personal experiences also influence the category we draw upon most readily.

Those who have lived for long enough under financially difficult conditions may have become accustomed to interpreting many decisions as spending issues. This familiarity makes it more likely that they will focus on cost even after their income has increased. Two people with the same resources and tastes may therefore exhibit different levels of price sensitivity because they pay attention to different aspects.

The same mechanism can lead to errors. Focusing on a modest healthcare bill, for example, can cause much greater medical benefits to take a back seat. This isn’t necessarily a preference for poorer health, nor is it a rational assessment of the cost-benefit ratio: it could be the effect of a price-dominated frame of mind.

From a $20 bottle of wine to the costs we don’t see

The theory also addresses mental accounting. The paper cites a famous example: a person buys a bottle of wine for $20; years later, that bottle is worth $75, but they decide to drink it. What is the perceived cost?

From an economic standpoint, drinking the wine means giving up the opportunity to sell it for $75. Many people, however, would argue that the cost is either zero or $20. The potential gain remains outside the mental representation triggered by consumption. When we think, “I’m drinking a bottle I’ve already bought,” we focus on the present pleasure. When we think, “I own a resalable asset,” the opportunity cost becomes more apparent.

This example clarifies a crucial point: attention is not simply a matter of more or less. It is organized into different configurations. People can switch abruptly from one interpretation of the problem to another.

“The way the DM thinks about a problem can affect her weighting of hedonics and events, which may be confused with differences in tastes and information.”

What appears from the outside to be a change in tastes could therefore be a change in the weight assigned to price, quality, probability, or potential losses.

A single theory for many cognitive biases

The study’s most ambitious contribution is the link between phenomena often studied separately: price sensitivity, mental accounting, the framing effect, neglect of base probabilities, the gambler’s fallacy, and overreactions to rare risks.

The common thread is categorization. A relevant detail can prompt the mind to reclassify the problem and, in doing so, increase attention toward certain pieces of information while reducing it toward others. A rare risk may be virtually ignored under normal conditions and suddenly become dominant after a highly visible incident. It is not just the risk estimate that has changed—the problem we believe we are evaluating has changed.

The model is theoretical and does not present a new experiment with a sample of participants. Its strength lies in its ability to generate testable predictions. For example, price sensitivity should decrease when the context evokes more consumer experiences; those who have faced scarcity more often may find it easier to focus on costs; a seemingly irrelevant change in the description of a statistical problem could shift attention from the baseline probability to the new evidence.

The research also suggests a practical lesson. Simply providing people with more information may not be enough: data may be available yet receive very little attention. To improve decision-making, we need to design contexts capable of bringing out the most useful mental representation.