What is... | October 17, 2012

What is the framing effect?

Many of us would like to think that we make decisions based on the cold facts. But whether we admit it or not, our decisions can be swayed by the way in which a choice is presented, or “framed”.

This phenomenon is known as the framing effect. And there are methods we can use to move the control back to us.

What are the chances?
Consider two questions: Would you accept a bet with a 10% chance of winning €95 but a 90% chance of losing €5? And would you buy a €5 lottery ticket that had a 10% chance of winning €100?
In this example, cited in new book Thinking Fast and Slow by Nobel Prize recipient Daniel Kahneman , it’s possible that many people would refuse the gamble but buy the lottery ticket But if you look carefully, the choice is the same. The difference is simply in the framing: the language used to describe the options.

Compared to the Champagne, this wine is cheap
In a seminal paper from 1981, psychologists Amos Tversky and Daniel Kahneman used a now-classic example about disease prevention to illustrate what academics call “preference reversals”. It explains that we may prefer one option over another when it is framed in one way, but then chose the other option when the problem is reframed.
The key idea here isn’t that decisions are framed, it is how they are framed. Every decision is presented in some way. A new medical treatment with a 90% survival rate sounds much more promising than one with a 10% mortality rate. Similarly, a bottle on the wine menu will seem like a better deal when listed by the shockingly expensive champagne than when shown next to the cheapest bottle of house wine. Although framing itself is not necessarily a bad thing, savvy marketers and other influencers may use the framing effect to their advantage – and to the detriment of your wallet.

Tell me what I want
The language used, the physical arrangement of the options and how we think about a problem are all aspects of the decision frame - aspects which can leave us susceptible to all sorts of cognitive biases.
Depending on how a choice is presented, our decisions might be influenced by biases, such as loss aversion (the tendency to want to avoid a loss more so than we want to acquire an equivalent gain) or narrow bracketing (failing to see the larger context of the decision). Another common thinking trap is mental accounting (the way people tend to separate money into separate “buckets” for food, shelter, transport and other expenses even though money is “fungible” so can easily be switched for different uses).

Take control
Despite the fact every choice is framed in some way, we are not all destined to a life of poor choices.
Again research can help us out. Academic Irwin Levin and colleagues found that certain personality traits are linked to how strongly we’re swayed by various framing effects, and scores of other researchers have identified some conditions that mitigate the framing effect. To reduce the influence of framing on your next financial decision, try:
- Slowing down. Slow down your decision making to move beyond an immediate emotional or intuitive response. Try to reframe the options and see if you would make the same choice if they were presented differently.
- Getting a second opinion. Making decisions takes a lot of mental energy; sometimes there’s not enough leftover to consider frames, says Kahneman. Enlist the help of someone slightly removed from the decision who might be able to see the set of options from a different perspective.
- Being happy. New research has found that showing people happy images to put them in a good mood weakened the gain/loss framing effect. It’s another reason to get out an old photo album.
- Thinking big. Try widening the frame, suggests Sheena Iyengar, professor at Columbia University and author of The Art of Choosing. Saving €x per month may seem difficult when thinking about your disposable income, but consider that same amount as a percentage of your overall income, and it may feel comfortably manageable.

EconomicsBiasMental accounting

Nathalie Spencer
Nathalie Spencer

Behavioural scientist at ING

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