ISS 305 3.23.17 - Framing and Other Decision Snags Framing...

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Framing and Other Decision Snags Framing o The change in decision making according to different frames (win vs loss) is a decision snag o Why are the framing effects so strong? We have a natural tendency to be risk avoidant for gains, and risk taking for losses We hate to lose -> can lead to faulty decisions Framing in surveys -> question phrasing can lead to different answers Experiment with same question, but different introduction Education makes us a bit less sensitive to framing Problems: don’t know if there are variables framing, don’t know if it is valid Endowment Effect o A consequence of loss aversion o We typically demand more for what we have than what we would be willing to pay for o Ownership increases the value of what we have – for us Mental Accounts o The tendency for people to separate their money into separate accounts based on a variety of subjective criteria, like the source of the money and intent for each account o
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