Framing bias refers to the tendency of individuals to judge an object by its physical appearance. Framing bias can lead people to make irrational decisions. For example, people might evaluate an object by its monetary value on a rational argument about its practical qualities. Framing bias is a relevant concept for researchers and practitioners in behavioral economics. It has been widely used in economics, psychology, and political science to acknowledge a phenomenon that occurs when individuals have different perceptions regarding a particular situation (Featherston et al., 2020). For example, the consequences of a stimulus given might not be what we intend to achieve, or even how it is done can hurt someone’s decision-making process. Overall, framing bias is one of the most discussed topics in behavioral economics. By using information and incentives, framing bias can be used to improve your decision-making. There are numerous examples of framing, but I would like to focus on how it pertains to economics and behavioral economics, specifically the use of loss aversion and framing effect to improve decision-making.
Framing bias is a behavioral economics concept that involves how people interpret information. The idea of framing bias is critical to understand when it comes to improving decision-making (Rahnev & Denison, 2018). The theory of framing states that people’s attention is drawn to the lens through which they view an issue, so if one wants to change their mind about something, one needs to make sure that how one presents their argument changes their frame of reference. Additionally, framing is the idea that people are not always making decisions based on what they want but rather on what they think other people want them to do.
It can be dangerous because it leads to decisions that are more likely to benefit the person who frames them than those whose interests they serve. For example, if one buys a car and looks at two different cars, one is significantly cheaper than the other. If they were to decide based on their preferences alone and not how other people might perceive them, they might buy the more affordable car because it would make them look like better value for money than if they had chosen the more expensive one. But if they instead frame their decision around how others will see them as savvy shoppers, they will choose the more expensive car because it makes them look like they have made a good decision for themselves (Sharma & Kumar, 2019). It is not necessarily bad; it just means that sometimes when framing one’s decisions around what others think about them or how they should behave. One may be less satisfied with them than if they had chosen something else entirely.
In conclusion, framing bias is relatively simple: how a particular choice is presented can alter how others perceive the value of this choice. Often, this use of language will cause people to switch their decision process between options, for example, present people with decisions in terms of gains rather than losses, and more people will choose to maximize profits at a given cost. In other words, when people make choices framed in terms of gains rather than losses, they are more likely to follow up on these decisions once they are made. In addition, studies suggest that framing decisions in ways that emphasize losses rather than gains will provide a better decision. Agency theory describes how humans make choices based on their perceived ability to control options in the deciding set. If a person decides that they have little or no control over the outcome of choice, they are more likely to choose the option that limits potential losses while minimizing possible gains. It is not to say that the most rational decision will always be the one with the least amount of risk, but it may act as a cognitive shortcut when given too many choices.
References
Featherston, R., Downie, L. E., Vogel, A. P., & Galvin, K. L. (2020). Decision-making biases in the allied health professions: A systematic scoping review. PloS one, 15(10), e0240716. Web.
Rahnev, D., & Denison, R. N. (2018). Suboptimality in perceptual decision making. Behavioral and Brain Sciences, 41. Web.
Sharma, A., & Kumar, A. (2019). A review paper on behavioral finance: study of emerging trends. Qualitative Research in Financial Markets. Web.