1. FRAMING
Farhad Heydarian
Pooria Miladi
Hafez Ejlali

2. What is Framing?

3. What is Framing?
• Which one to choose?
a) receive 100$ for sure
b) 50% chance for 200$
and 50% chance for nothing
• What is the rational choice??

4. Different frames are different
ways of looking
So
It means
Solving
Different mental models

6. Size and shape of a window frame, make
the view
Defining and structuring
The problem, makes the
Decision maker’s view

7. • We make frames for our problems
• Also we can be framed by experts
• Cost accounting frame: Mental accounts
Particular
frame
experience
norms
expectations
Desire for simplicity
habit

8. Types of Framing
• Outcome framing:
Different representations
• Structure framing:
Size of view
• Task framing:
interpretation

9. Outcome Framing
• We usually use numbers to describe the outcoems
• Numerical quantites can be defined in number of ways
What we will discuss
1- Gain or losses
2- Aggregate or disaggregate quantities
3- Scaling the outcome in a different currency
* Loss aversion

10. 1- Gains or Losses
• 600 people expected to be killed by the
disease...
Case A:
a) 400 people will die
b) 1/3 probability that no one will die
2/3 probability that 600 people die
Case B:
a) 200 people will be saved
b) 1/3 probability that 600 people will be
saved
2/3 probability that no one will be saved

11. Prospect Theory
Actual
loss
Actual
gain
Neutral
reference point
Psychologi
cal value

12. • 100 shares for 20$ per share two
years ago
• Stock drops to 10$ per share during
two years
• A possible great “hit” :drilling for oil or
“nothing”
• Sell the stock for 10$ or not?

13. 2- aggregate or disaggregate
quantitites
• Hedonic editing:
V(x&y)=Max[v(x+y),v(x)+v(y)]
• Multiple gains
• Multiple losses
• Large gain, small loss
• PAD Framing

15. 3- Scaling in a different currency
• Gamble in fiction currency
• 20$ to each participant.
• 2PI$ or 200 PI& in fiction currency.
• Half amount of risk for lower amount of
fiction money!
- Anchoring on the nominal value
- Using numerosity to make judgment of quantity

16. Loss Aversion

17. Endowment effect
WTA~WTP

18. Sunk cost effect
Past investment => continue an endeavor
Not letting the product to go to waste
50$ and 100$ ski trip
A businessman when the price of his goods decreased

19. Advantage and disadvantage in choice
Difference between two disadvantages
Is more than
Difference between two advantages

20. Status quo bias
Loosing status quo > gaining other conditions
New medical plan wih new employees
Mug and chocolate bar
Reluctance to choose
After
choosing
Loss of other choices
>
Gain of present choice
Worse feeling
after decision
Loss
aversion

21. Structure Framing
• Size & Arrangement of decision
maker’s view of problem
• Can be done in three different ways:
1- Integration or segregation of information
2- Sequential framing of contingent events
3- Scope of the frame

22. 1- Integration & Segregation
• Two Cases :
Case 1 :
E) 25% chance to win 240$ & 75% to lose
760$
F) 25% chance to win 250$ & 75% to lose
750$
F dominates E : E) [ 0 percent ] & F) [100
percent ]
Case 2 :
Two Concurrent Decisions

23. Decision 1 :
A) A sure gain of 240$
[ 84% ]
B) 25% chance to gain 1000$ & 75% to gain
nothing [ 16% ]
Decision 2 :
C) A sure loss of 750$
[ 13% ]
D) 75% chance to lose 1000$ & 25% to lose
nothing [ 87% ]
• Conjunctive preference for A&D [73%] over

24. • Bracketing Effect
- Discrepancy Between Case 1 & Case 2
- When facing a group of choices, decision
maker may use:
1- Broad Bracketing :
- Bracketing choices together into one
compound choice
2- Narrow Bracketing :
- Considering choices one by one

25. 2- Sequential Framing
• Two Cases:
Case 1) A two-stage game : 75% chance to
get nothing, 25% to reach 2nd stage
A) A sure win of 30$ [ 74
percent ]
B) 80% chance to win 45$
[ 26 percent ]
Case 2)
C) 25% chance to win 30$
[ 42 percent ]

26. • Pseudocertainty Effect :
-Two case are identical , but not the choice
patterns!
-Contrast between patterns is due to
“pseudocertainty”
-Option A seems more attractive, because:
Respondents WRONGLY take reaching 2nd
stage as “GRANTED”
- This certainty is just an “illusion”!
- Best way to advertise an insurance policy:

27. The Scope of the Frame
• “Narrowly “ framed mental accounts
- Cost & benefits are “Coupled”
• “Broadly” framed mental accounts
- Facilitates “Decoupling”
• Price Bundling
- Ernie buys four 40$ of worth, 1-day
tickets
- Bert buys a single 160$ of worth, 4-day
ticket
- Poor skiing conditions of 4th day, who is
more likely to ski

28. - Economic perspective
- Ambiguity inherent a bundled
transaction
- Which one will use narrow framing,
Ernie or Bert?
• Reducing loss aversion through
“Broad” framing
1-Case of vacation package : airfare,
hotel, sightseeing
- sightseeing option is deleted
A) Bundled price with decomposed prices

29. 2-Equity Premium Puzzle
- Loss-averse individuals dislike stocks!
- Overinvesting in fixed income
securities
3-Gambling
- Famous story of Nobel Prize winner
economist
4- Payment Depreciation
- takes effect in two ways, based on
whether:

30. Joint Vs. Separate Preference
• Political polls for two candidates:
- 1st one: 10,000 new jobs, rumors
of misconduct
- 2nd one: 5,000 new jobs, clean!
• When assessing: individually, 2nd
candidate wins
together , 1st
candidate wins!
• “Want/Should” explanation
• “Evaluability” explanation

31. Transactional Utility
• How much are you willing to pay for a
cup of coffee at:
- “Sia Boof”!
- A fancy cafe’ ?
• Acquisition utility & Transactional
utility
• A 40$ discount for a:
A) mouse
B) laptop

32. •Goal Framing
•Incomplete Information
•Affective Balance
Theory
•Fuzzy-Trace Theory
•Task Framing

33. Goal Framing
Framing goal of activity
advantages of participating
Or
Disadvantages of not participating
Wearing
Seatbelts
For
exampl
e

34. Incomplete Information
Symmetry ofinformationwhen exists
framing disappears
•Symmetry
of
completene
ss
•Symmetry
of
incompleten
ess

35. Incomplete Information
Asian disease problem ( additive method )
A:200 people will be saved and 400 will die
B:1/3 all will be saved, 2/3 will all will die
or
C:200 people will be saved
D:1/3 all will be saved

36. Brian's mechanism in DM
Amygdala OMPFC
regulationsemotions

37. Affective Balance Theory
Neural Network Model
Short-
term
memory
Long-
term
memory
Dipol
e
gate
Decision

38. Fuzzy-Trace Theory
Cognitive Perspective
information
Verbatim
Gis
t
memory
reasoning

39. Fuzzy-Trace Theory
Asian
disease
Gain frame Loss frame
Sure option
"If program A is adopted, 200
people will be saved."
"If program C is adopted, 400
people will die."
Risky option
"If program B is adopted,
there is 1/3 probability that
600 people will be saved, and
2/3 probability that no people
will be saved."
"If program D is adopted,
there is 1/3 probability that
nobody will die, and 2/3
probability that 600 people
will die."
Encoded gist of sure
option
Some people will be saved Some people will die
Encoded gist of risky Some people will be saved or Some people will die or no

40. Task Framing
Rephrasing The Task
To choose or to reject options
Choosing highlighting of positive
features
Rejecting highlighting of negative
features

41. Task Framing
Single-child sole-custody problem
Parent A : [ awarded : 36 %
denied : 45% ]
• Average income
• Average health
• Average working hours
• Reasonable rapport with the child
• Relatively stable social life
Parent B : [ awarded : 64%
Above-average income
• Very close relationship
with the child
• Extremely active in
social life
• Lots of work-related
travel
denied : 55% ]

43. The frames we use to view the
world determine what we see,
locking us into certain ideas and
shutting out new possibilities.
Schoemaker and Russo, 2001

44. Good
luck &
Be careful!