Framing and Nudges: Part 1

After finishing the well-known Sunstein and Thaler book Nudge, a most obvious theme comes up. To see its origins, consider a simple question: does the way in which a question is asked influence the responses elicited?

A well known example comes from a Daniel Kahneman and Amos Tversky experimental study, which presented participants with the same question, phrased in two different ways:

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 that the exact scientific estimates of the consequences of the programs are as follows:

If Program A is adopted, 200 people will be saved.

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.

The first group of respondents, faced with this comparison of Program A and Program B, favored Program A (78% to 22%). A second group of respondents, on the other hand, was asked to choose between Program A (now C) and Program B (now D), and was presented with the identical facts just differently phrased:

If Program C is adopted 400 people will die.

If Program D is adopted there is 1/3 probability that nobody will die, and 2/3 probability that 600 people will die.

Now, participants expressed a preference for Program D (78% to 22%). Despite the exact numerical equivalence of the statistics each group saw, preferences were reversed between groups! The simple moral here (one of many, surely) is that when an individual is faced with an opportunity to choose, the manner in which the choices are presented matters.

This revelation is typically identified the context of framing – it matters how questions are framed to us. The importance of framing lies in the additional layer it provides to traditional economic analysis of decision making. Normally, economists model individuals as hyper-rational decision making machines, who can perfectly process information, compare options, and make the best choices. However, as the example above demonstrates, we can be easily fooled merely by the way in which the question presents itself.

As its broadest, the process of framing is widely applied. Consider a political discussion of a tax break which would benefit Mr. Owens, who makes $2 million a year, by permitting him to pay $20,000 less in taxes. How should a politician describe the policy to the public to best support his stance? Opponents of the tax break may try to emphasize that the tax break provides Mr. Owens with an additional $20,000 in his pocket, a sizable sum to many Americans. Proponents of the tax break will suggest that the actual size of the break is small, saving Mr. Owens a mere 1% of his income. Both facts are true, but the same policy may be perceived differently when differently framed.

So if framing matters, how can it be put to good use? Part 2, posted later this week, will discuss how choice those who frame the decisions we face (Sunstein and Thaler call them choice architects) can frame these choices to “nudge” us decision makers in the right direction.

Advertisements

3 comments

  1. […] Part 1, I discussed that the way choices are presented to us matters. It can greatly influence how we make […]

  2. […] economists frequently consider the impact of framing effects, which sometimes induce preference reversals (wherein consumers prefer x to y then, when asked […]

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: