26.3 Framing Effects
Consider the following problems (Tversky and Kahneman 1986). The numbers
in brackets indicate the percentage of respondents who chose each option. (The
number of respondents in each problem is denotedN.)
Problem 1ðN¼ 126 Þ
Assume yourself richer by $300 than you are today.
You have to choose between.a sure gain of $100 [72%]
.a 50% chance to gain $200 and a 50% chance to gain nothing [28%]
Problem 2ðN¼ 128 Þ
Assume yourself richer by $500 than you are today.
You have to choose between.a sure loss of $100 [36%]
.a 50% chance to lose nothing and a 50% chance to lose $200 [64%]
In accord with the value function above, most subjects presented with problem
1, which is framed as a choice between gains, are risk averse, whereas most
subjects presented with problem 2, which is framed as a choice between losses,
are risk seeking. However, the two problems are essentially identical: When the
initial payment of $300 or $500 is added to the respective outcomes, both
problems amount to a choice between $400 for sure and an even chance at $300
or $500. The different responses to problems 1 and 2 show that subjects did not
combine the initial payment with the choice outcomes as required by norma-
tive analysis. As a consequence, the same choice problem framed in alter-
native ways led to systematically different choices. This result is called aframing
effect.
The combination of risk aversion for gains and risk seeking for losses implied
by the value function of figure 26.4 can also lead to violations of dominance,
which is perhaps the simplest and most compelling principle of rational choice.
The dominance principle states that if option B is better than option A on one
attribute and at least as good as A on all the rest, then B should be chosen over
A. For example, given a choice between
A: 25% chance to win $240 and 75% chance to lose $760
B: 25% chance to win $250 and 75% chance to lose $750the dominance principle requires that the decision maker prefer option B to
option A, because B offers the same chances of winning more than A and of
losing less. Consider, in contrast, the following two choices, one involving
gains and the other involving losses (Tversky and Kahneman 1981):
Problem 3ðN¼ 150 Þ
Imagine that you face the following pair of concurrent decisions.
First examine both decisions, then indicate the options you prefer.
Decision (i). Choose between
C: a sure gain of $240. [84%]
D: 25% chance to gain $1,000 and 75% chance to gain nothing [16%]Decision Making 605