Framing Effect
The Framing Effect as outlined by Prospect Theory indicates people make different decisions based on whether a choice is presented as a gain or loss. Don’t do this. You need to examine decisions from both perspectives to ensure you have properly thought through your options.
A famous example from the pioneers of Prospect Theory, Daniel Kahneman and Amos Tversky:
1. You have $1000 and must pick from the following
Choice A) You have 50% chance of gaining $1000 and a 50% chance of gaining 0
Choice B) You have a 100% chance of $500.
2. You have $2000 and must pick one of the following choices
Choice A) You have a 50% chance of losing $1000 and 50% of losing 0
Choice B) You have a 100% chance of losing $500
To be consistent you must make the same choice for both questions because the amount of money you’ll have in the end is the same. With choice A it will be $1000 or $2000. With choice B it will be $1500.
People who answer A / A are risk seekers. While people who answer B/B are risk adverse. Most people answer B/A, indicating they are risk adverse when it comes to gains and risk seeking when it comes to losses.
The challenge to remaining consistent is it is less cognitively demanding to remain inconsistent because of System 1. System 1 as described by Daniel Kahneman in Thinking, Fast and Slow is the quick thinker and is naturally oriented towards B/A thinking. This is due to our decision making being influenced by how information is presented. So when system 1 is in charge how information is presented tends to drive decision making versus a reasoned analysis of all available options.
So the trick is to get System 2 to kick in because it provides a slower more reasoned approach to decision making and is more capable of detecting errors. In this regard reevaluation can be a powerful tool to overcome the framing effect. The act of reexamining the decision is oftentimes enough to stimulate system 2 into action. And once system 2 comes into effect we can generally work through the framing effect and optimize the decision at hand based on our objective.
Recognizing Positive Frames
We’ve all been there. Mindlessly browsing the web when an irresistibly structured offer comes to our attention and we click on it before we realize it’s too good to be true. Usually we recognize what’s happened relatively quickly and exit the page praying that during the short visit our computer hasn’t picked up some kind of virus.
The outcome is not so benign for everyone though. Getting their money out of the US is proving to be increasingly difficult for hackers from foreign countries. To facilitate the extraction of their dough sophisticated networks have sprung up to entice American citizens with too good to be true offers over the Internet.
Basically these networks indicate that as a foreigner they need assistance from a US citizen to facilitate a transaction through their bank account while offering a fee for the assistance. The money gets deposited in the account, the US citizen passes it along to their contact, and pockets some money for their effort. The surprise comes when the FBI shows up at their door step for money laundering.
Usually the person has no idea they’ve been aiding an international criminal syndicate. In challenging economic times people who are struggling are understandably susceptible to these offers. Their system 1 is thinking why not help this nice person out with their problem while making some needed money.
If they had reevaluated the decision prior to agreeing to help out. They would probably have ended up thinking why the heck would someone from a foreign country need my help if things were above board. They could easily arrange for the transaction with a bank in their home country and they certainly wouldn’t need to widely advertise across the Internet for the services of a random stranger.
While dramatic this example illustrate how easy it is to fall prey to advertisements from savvy marketers who understand how to present messages in a way to trigger a response. Given the volume of information coming our way and how cleverly ads our often embedded in the content we view. Training ourselves to pause and reevaluate a decision from the opposite perspective is only growing in importance.
Resisting Negative Frames
It can be more challenging to overcome the negative frame than even the too good to be true offer. The fear of missing out is a naturally potent motivator for people adept marketers put to use all the time. In the past I’ve frequently used deal sites like groupon and living social. They basically built a business on this principle.
I once found myself with a certificate to eat at a restaurant 30 miles from my house because when I saw the clock ticking and the low volume of coupons left I couldn’t help but click away. Shockingly I still haven’t redeemed it. The worst part is right after when you realize you should never have purchased it.
This was one of the primary motivators behind the checklist. A useful tool to generate the pause necessary to reevaluate the offer at hand before initiating a purchase. When repeated enough this should instill the habit of reevaluating purchases to minimize framing along with other cognitive biases as factors in decision making.
Because nobody wants to miss out, nobody wants to feel suckered though either. And rapid fire impressions don’t lead to the best decision making. Sometimes urgency is legitimate and a purchase decision should be initiated to take advantage of a limited time offer. Revaluation helps you to identify attempts at manipulation and only move forward when truly necessary so buyer’s remorse can be avoided.
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He's published three books. Most recently The World After Covid 19: Coexisting with the Novel Coronavirus.
His musings can be found at stevenlmiller.me. Subscribe to The Pompatus Times for updates.
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