# The Science of Decision-Making: Framing

In 1982, Nobel Prize winning psychologists Amos Tversky and Daniel Kahneman conducted a study of how framing affects decision-making. They created a scenario and asked two groups of participants to choose the program that was most optimal. This scenario was called the “Asian disease problem” and it yielded surprising results. Try it for yourself:

“Imagine that the U.S. is preparing for the outbreak of an unusual Asian disease, which is expected to kill 600 people. Two alternative programs to combat the disease have been proposed. Assume the exact scientific estimate of the consequences of the programs are as follows”:

Program A:  200 people will be saved

Program B: there is a 1/3 probability that 600 people will be saved, and a 2/3 probability that no people will be saved

Which program would you choose? During the study, 72% of participants chose Program A and the remaining 28% chose Program B.

The second group of participants were given the same scenario but with different program options:

Program C: 400 people will die

Program D: there is a 1/3 probability that nobody will die, and a 2/3 probability that 600 people will die

Again, which program would you choose? From the second group: 78% chose Program D and the remaining 22% chose Program C.

Programs A and C are identical, as are Programs B and D. Why did the participants’ preferences switch? Tversky and Kahneman had demonstrated the reversal of preferences, where the participants switched from a secure death count (“200 people will die”) to a gamble (“there is a 1/3 probability that nobody will die…”) due to how the programs were presented, or framedFraming is a way of presenting a concept that plays on an individual’s perception of words or phrases. It’s an important theme in behavioral economics, and has challenged the rational choice theory (“wanting more rather than less”) of decision-making.

Let’s take a look back at the Dilbert strip I showed you a few weeks ago:

Dogbert is facing some hesitation from a client that believes his consulting fees might be too high. This client frames his own prices as “50% off” to make shoppers feel like they got a deal. Dogbert does the same and gives his client a frame of reference (“I usually charge \$800 an hour”) to make him think he’s saving money.

In Tversy and Kahneman’s thought experiment, using the words “live” and “die” influenced participants’ decisions. Even though the outcomes were the same, the second group’s preferences were the opposite of the first group’s. The participants most likely associated “live” with something positive, and chose the more secure option. Even though having 400 people die was the same outcome as having 200 people live, “die” might have prompted a negative response and caused participants to choose the gamble instead. Tversky and Kahneman found that framing a problem positively encouraged risk-averse behavior, while framing a problem negatively prompted riskier behavior.

That is, people tend to make riskier decisions when faced with a potential loss, and make more secure decisions when options are presented as gains. Tversky and Kahneman’s findings in framing ultimately led to prospect theory, which states that decision-making is driven by gains and losses rather than the final outcome.