For centuries, economists referred to the normative models when judging whether a decision is rational or not. Although the definition of rationality has been largely debated, there is a general agreement that rational choices should, among others, satisfy an invariance requirement. According to the invariance principle, regardless of the various framing options presented, people’s preference among certain options should not be influenced. However, an extensive body of evidence indicates that people do not conform with this principle, and they are, in fact, predisposed to persistent decisional biases. This phenomenon is referred to as loss framing effect in which, through loss-aversion, choice reversals or shifts occur when the expected outcome of a situation is communicated as either negative or positive.
Think about the illustrated study, taken from the work of Economics Nobel laureates Daniel Kahneman and Amos Tversky. In their study, Kahneman and Tversky asked participants to decide between two treatments concerning 600 people who contracted a fatal disease. The treatments were framed either positively, highlighting the number of lives that would be saved, or negatively, focusing on the loss of lives. If you are like most people (72%), in the positive frame case, you have chosen treatment A that saves 200 people with exact certainty. The interesting fact is that when the problem is communicated accentuating negative sides, the number of people choosing the certain treatment option significantly declines to 22%, leading to 50% choice reversal.
What explains this contradictory phenomenon?
The framing effect is a natural consequence of human cognitive psychology that ensured survival in the past. Through experience, we have learned to select the positive events that are certain, and take caution and try to avoid events with negative outcomes. Loss-framing has been extensively discussed in Behavioural Economics, and it has been found that the weight given to the outcomes considerably differ depending on whether they are seen under positive or negative light – effects of equal amount of losses being two times greater than effects of gains. Accordingly, in valence framing effects, the way through which critical information is presented (framed) – in either positive or negative semantics – would lead to different decisions. In other words, by changing how it’s said, framing alters the perception of what is said.
What are some of the implications?
Implications of loss framing with respect to businesses are virtually boundless, with promising effects on behavior at no cost. For instance, many companies make the mistake of highlighting how much people would save (7%) by buying their products in their marketing campaigns. However, a more effective way to frame their campaign would be “buy now, do not lose 7%“, which includes both a call for action and loss framing technique, eliciting the common fear of missing out. Regarding non-profit organizations, particularly charitable ones, converting common positive messages of “save lives of children” to “do not miss the opportunity to save others” would have substantial impact. In addition, other types of framing, such as attribute framing, can alter perceptions for a particular product. A typical example is applied by meat producers via telling 95% lean beef instead of 5% fat beef.
The power of framing arises from the fact that it is extremely easy to apply, generating quick and effective results (eg. there was a 50% choice shift in the aforementioned study). It is usually the small things, with a cascading effect, that bring drastic changes. Hence, through changing how the information is presented, framing can be a potent tool to achieve the desired goals in numerous contexts, including consumer choices, perceptual judgments, and medical decisions.
Valence-Framing: Same Question, Different Answer
Mental Accounting: Our Cognitive Filters
References & Further readings
Kahneman, D. and Tversky, A. (1984). Choices, values, and frames. American Psychologist, 39(4), 341-350.
LeBoeuf, A. R. and Shafir, E. (2003). Deep thoughts and shallow frames: on the susceptibility to framing effects. Journal of Behavioral Decision Making, 16(12), 77-92.
List, A. J. and Hossain, T. (2009). The Behavioralist Visits the Factory: Increasing Productivity Using Simple Framing Manipulations. Management Science, 58(12), 2151-2167.
Matjasko, L. J., Cawley, H. J. Goering, M. M., Yokum, V. D. (2016). Applying Behavioral Economics to Public Health Policy: Illustrative Examples and Promising Directions. American Journal of Preventive Medicine.50(5), 13-19.
Read, D. and Scholten, M. (2018). Future-oriented decisions: intertemporal choice. In: R. Ranyard ed., Economic Psychology. Sussex: Wiley, pp.35-50.