Explain what is meant by the framing effect and discuss any related policy implications.
Introduction
Behavioural economists have been discussing the framing effect and how important it is on behavioural economics and decision making. In this report I will explain what framing is, different types of framing and how we can use framing to our advantage. In short, framing is a set of concepts and theoretical explanations about how individuals and organizations perceive and communicate reality. There are two types of frames, “Frames in thought consist of the mental representations, interpretations, and simplifications of reality. Frames in communication consist of the communication of frames between different actors”. (Druckman, J. (2001). “Evaluating framing effects”. Journal of Economic Psychology.)
The framing effect is a cognitive bias that changes the way the perceiver thinks. Humans process information quicker by filtering information through a ‘schema’, which interprets information based on previous experiences and knowledge. A frame can be the same option demonstrated in either a positive or negative way. The idea is that humans react to the positive or negative frame and use it to base their decisions. A scenario can be presented in two different ways, each of them leading to a different decision made by the consumer. This is one of the dangers of the framing effect. (Druckman, J. (2001). “Evaluating framing effects”. Journal of Economic Psychology. 22: 96–101). People tend to avoid risk when a positive frame is presented but seek risks when a negative frame is presented.
The idea that a frame can change perceived attractiveness comes from the prospect theory. The prospect theory is an economics theory developed by Daniel Kahneman and Amos Tversky in 1979. In contrary to expected utility theory. the prospect theory states we are loss aversive. In a risky choice leading to gains, individuals become risk-averse, favouring the option that leads to a lower expected utility but with a higher certainty. Challenged with a risky choice leading to losses, individuals are risk-seeking, preferring solutions that lead to a lower expected utility if it has the potential to avoid losses.
Levin, Schneider, and Gaeth (LSG, 1998) proposed three different types of framing. They are risky choice framing, attribute framing, and goal framing.
Risky choice framing
This type of framing presents information in terms of a gamble that could result in loss or a gain. When options are framed positively i.e. in terms of the gain, the viewer is more likely to take action. The difficulty with this type of frame is trying to guess how much risk the consumer/person is willing to accept in order to avoid a loss.
A classic and regularly cited example of risky choice framing is a study by Kahneman and Tversky (1981) on how different phrasing affected participants’ responses to a choice in a hypothetical life and death situation in 1981. They asked group A to pick a solution for problem 1: Imagine that USA is preparing for the outburst of an abnormal deadly Asian disease, which is expected to kill 600 people. Two alternate programs to combat the virus have been suggested. Assuming that the precise scientific estimates of the consequences of the options are: If Program A is adopted, 200 people will be saved. If Program B is adopted, there is a 1/3 probability that 600 people will be saved, and a 2/3 probability that no people will be saved. Tversky and Kahneman found that nearly ¾ of the participants chose Program A. Group B were asked to respond to Problem 2, which differs from Problem 1 only in an alternative viewpoint. This time, respondents were encountered with two choices: If Program A is approved, 400 people will die. If Program B is applied, there is a 1/3 probability that nobody will die, and a 2/3 probability that 600 people will die. This time Kahneman and Tversky found that more than ¾ of participants chose option B. The difference in the independent variables in the options is that: Problem 1 is presented / framed positively and participants would rather a sure gain than a probable gain, and would rather save 200 lives for certain than potentially saving all 600 lives. Program 2 is framed negatively (highlighting the losses) and so respondents would rather a probable loss than a sure loss, hence picking option B.
Attribute framing
This type of framing shows qualities in either a positive or a negative light. LSG, 1998 find that in attribute framing, the positive frame is more effective. The consumer is more likely to take action when the frame illustrates a desired feature. The consumer is less likely to take action if the image highlights an undesirable feature. In this type of frame, it is difficult to recognise the qualities the viewer finds attractive.
An example of this can be the recent UK election in December 2019. The conservative party have constantly highlighted how they are going to execute Brexit and how they have an “oven ready” deal ( (The Irish News, 2019). The media also highlighted that the opposition, Jeremy Corbyn and the labour party were ‘neutral’ when it came to leaving the EU (Stewart and Walker, 2019). Though Corbyn had policies (qualities) that would interest a majority of voters, they ignored this in favour of all the news and reports on Brexit. Voters ignored all other aspects and voted conservatives as Brexit is what they were most interested in. There are many examples of how elections and policies are framed, and Druckman J. 2001 even argues that there is “evidence that citizens base their preferences on arbitrary information and/or are subject to extensive elite manipulation”. Equivalency framing is similar in terms of interpretation, frames contain the exact same information (e.g. 95% unemployment or 5% employment), however Levin et al. (1998) find that many equivalency framing effects work through automatic, subliminal processes—for example, by artfully displaying a positive or negative tone of evaluation, this can be another example of elite manipulation.
Goal framing
Goal framing incites a decision by emphasizing the negative outcome of not participating. When options are framed in terms of what will be missed by not participating, the target audience is more likely to take action. In this type of framing, negative framing is more effective. To properly accomplish this type of framing you have to understand which negative outcomes will persuade the consumer to take action.
This can be used for drivers that speed, a common problem in every country in the world. A poster such as “Drive fast in to a crash? Or stick to the speed limit and make it home?” can be put in ads for drivers to see. This highlights that by participating in the speed limit, drivers are more likely to make it home with out getting into a crash, which is 4x more likelier to happen when speeding. This would reduce crashes, therefore improving road safety, which would mean less people in need of ambulances/ claiming on insurance. Reducing crashes significantly should be an aim of the government as in the end it would be less of a strain on the economy and improve efficiency and valuable time.
Another type of framing effect named as ‘menu effect’, refers to how people choose from several options on a menu, rather than how each option is described. There are several different types of menu effect, which all involve different choice heuristics. Iyengar and Lepper (2000) compare the behaviour of potential customers who were given a sample of 6 jams (the simple-choice treatment), with consumers who were presented 24 jams (the difficult-choice treatment). The findings suggest that, although more consumers stop to sample jams when there is more choice, substantially fewer actually buy jams (4 compared with 31 customers). Choi, Laibson and Madrian (2009b) report the same paradox in financial decision making, giving a smaller number of investment choices increases involvement in the plan. Kida, Moreno and Smith (2010) find a similar effect for new investors, but the opposite effect for knowledgeable investors, who were according to the study, less likely to invest when faced with a limited choice set.
When framing effect is less effective
Studies show that as children grow older, they are more susceptible to the framing effect. This may because qualitative understanding grows stronger with age (Reyna, V. F.; Farley, F. (2006). “Risk and Rationality in Adolescent Decision Making: Implications for Theory, Practice, and Public Policy”. Psychological Science in the Public Interest. 7 (1): 1–44 ). Teenagers are more likely than adults to take risks in both a gain and loss scenario. This is because adults have more real world experience, facing consequences of their decisions. Adults that need to make quick judgements often rely on arbitrary information and so unknowingly make a decision they would not in other circumstances.
The effects of framing also diminish when the reader is reading the message in their second language. This is due to the additional process In the brain to understand a message in their first language, thus eliminating any context of words and subsequently any framing.
Conclusion
The vast amounts of studies taken place on each economic topic and how susceptible it is to framing effect shows that humans rely on emotion and social ques to make decisions. Meta data shows that on average, gain messages have a larger effect than loss framed messages on altering people’s conduct in health, consumer behaviour and safety. Governments can implement this technique to adjust citizens behaviours in regard to offences, general consumption and even climate change. There is more to discover on framing effect as it is a fairly new concept, we have only touched the surface on to what extent framing effects role is in decision making.
Bibliography
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Stewart, H. and Walker, P. (2019). Corbyn ‘neutral’ on Brexit as Johnson attacked on trust. [online] the Guardian. Available at: https://www.theguardian.com/politics/2019/nov/22/jeremy-corbyn-labour-neutral-second-brexit-vote [Accessed 18 Dec. 2019].
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