Framing+Decisions

Perceptions and evaluations of risk are highly subjective. The framing of an issue, rather than its actual content, often determines whether it is seen as a "foolish risk," especially in the absence of objective standards (Tversky & Kahneman, 1981; cited in Aldrich & Fiol, 1994).

A decision problem is framed by the acts or options among which one must choose, the possible outcomes or consequences of these acts, and the contingencies or conditional probabilities. Tversky and Kahneman introduced the term “decision frame” to refer to the decision-maker’s conception of the acts, outcomes, and contingencies associated with a particular choice. The frame that a decision maker adopts is controlled partly by the formulation of the problem and partly by the norms, habits, and personal characteristics of the decision-maker. It’s often possible to frame a given decision problem in more than one way. Alternative frames for a decision problem can be compared to alternative perspectives on a visual scene.

//From Fall, 2011// In class we did an experiment where the same decision issue was framed from the perspective of //**jobs saved**// versus //**jobs lost**//.

The scenario in which the decision is framed in terms of jobs saved is considered to be in the "domain of gains" - we can gain 200 jobs with absolute certainty or we can gain all 600 jobs with some level of risk. In this domain most of us prefer the risk averse choice of the sure thing. The scenario in which the decision is framed in terms of jobs lost is considered to be the "domain of losses" - we can lose 400 jobs with certainty, or we can lose all 600 jobs with some level of risk. While the survey results only suggest this, the majority of us prefer to be risk-seeking when we are faced with a decision choice framed from the domain of losses.


 * Note that the problem is exactly the same in both scenarios**. The first has a sure thing of saving 200 jobs, while the second has a sure thing of losing 400 jobs. The only difference is in the way the decision process is **framed**.

Here are some more examples:



This is a clear-cut example of a decision that is framed from the **domain of gains**. As the non-scientific results show, most people adopt an approach that is **risk-averse**, preferring the sure thing over the possibility.



On the other hand, this is a clear-cut example of a decision that is framed from the **domain of losses**. Again, as the non-scientific results show, most people adopt an approach that is **risk-taking**, preferring the possibility over the sure thing.

Those of you who have studied rational decision making by now should realize that these scenarios should be preference neutral because **their expected outcomes are equal (e.g., $250 = 25% X $1,000)**. This experiment nonetheless illustrates how **the framing of the decision influences our preferences**.

In a separate, identical survey, **only one student** indicated that he or she would be indifferent in such a decision scenario, regardless of the decision framing.

Rational choice requires that the preference between options should not reverse with changes of frame. As this experiment and others have shown, people systematically reverse choice preferences when the framing of acts, contingencies, or outcomes are varied.