Framing Effect in Psychology and Economics
Framing Effect in Psychology and Economics

Framing Effect in Psychology and Economics

Understanding How & Why People Make The Decisions They Do

Individuals communicate based on a lifetime of experiences. Communications are ‘framed’ by an individual’s positive or negative experiences, such that the way a story is presented influences the way other people make decisions. If equal descriptions of the same statement result in people making different conclusions, this is called a framing effect.

Twenty years ago, psychologists Tversky and Kahneman created an experiment on framing effects. In the experiment, participants were split into two groups, with each group offered two alternative scenarios to a hypothetical situation where 600 people would be affected by a deadly disease.

Frames Certainty Uncertainty
Positive Group A: 200 people will be saved B: 1/3 probability that 600 people will be saved and a 2/3 probability that no people will be saved
Negative Group C: 400 people will die D: 1/3 chance that nobody will die and a 2/3 probability that 600 people will die

The outcomes presented in both scenarios are identical, just framed differently. The first group was presented with a positive frame (lives saved) and had to choose between a sure gain and an uncertain gamble. Those who choose Program A preferred the sure gain. The second group were presented with a negative frame (lives lost), with most respondents preferring the risky gamble over the sure loss option. 72% of participants from the positive group chose option A. However, 78% of participants in the negative group chose option D (equivalent to option B, not to option A).

Framing effects are a strongest bias affecting decision-making. The study of how people make decisions is known as behavioural economics.

To understand framing effects in agriculture, we investigated the decision-making process by assessing risk preferences of various stakeholders in the regulatory process to approve a new plant variety. The framing options was measured in terms of ‘crops saved’ and ‘crops lost’. Two different groups of respondents were included in the experiment, the general public and a stakeholder group in the regulatory process. The stakeholder group included three subgroups: scientists, researchers and developers; businesspeople in management, finance and marketing; and government officials in policy and administration.

Consistent with the previous findings, positive framing resulted in more risk aversion than negative framing, for both groups of respondents. The results show that the general public is more risk averse than expert stakeholders.

This type of research helps identify behavioural problems and potential solutions to decision-making errors. Information and regulations can be presented to ‘support’ decision-makers in making unbiased choices. The results of our study show that in general, the public and stakeholders groups responded the same to the framing effect. However, expert stakeholders have a better ability to deal with risky decision-making choices.

 


Dr. Simona Lubieniechi is a Professional Research Associate in the Department of Bioresource Policy, Business and Economics at the University of Saskatchewan in Saskatoon, Canada. Her current research interests include behavioural economics, in particular prospect theory and its extension to framing effects, overconfidence, as well as climate change mitigation policies and the economics of biofuel policies. She completed her PhD studies in agricultural economics with a specialization on the economics of climate change mitigation.

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