C-01 · Judgment & Decision
Identical outcomes, different words. Watch your own risk preferences invert depending on how a choice is framed.
Experimental design
Between-subjects (gain frame vs. loss frame); Asian disease problem
Framing effect
Systematic preference shift when equivalent outcomes are described as gains or losses
Loss aversion
Asymmetric weighting: losses loom larger than equivalent gains (λ > 1 in prospect theory)
Reference point
Status quo or baseline from which outcomes are coded as gains or losses
Prospect theory
Descriptive model of choice under risk: value is defined over gains/losses, not final wealth (Kahneman & Tversky, 1979).
Invariance axiom
Rational choice requires preferences over outcomes to be independent of description; violated by framing.
Risk seeking in losses
Convex value function for losses leads people to gamble to avoid sure losses.
Difficulty
IntroEstimated time
10 minutes
Paradigm
Framing & prospect theory
First published
1981
People do not evaluate outcomes in absolute terms; they evaluate gains and losses from a reference point, and losses loom larger than gains. Describing the same option as lives saved versus lives lost flips the majority preference.
Amos Tversky and Daniel Kahneman's 1981 'Asian disease problem' presented the same epidemic-response choice framed as gains (lives saved) or losses (lives lost). With a gain frame, 72% chose the certain option; with a loss frame, 78% chose the gamble. This violation of invariance, a pillar of rational choice theory, helped establish prospect theory, for which Kahneman later received the Nobel Memorial Prize in Economic Sciences.
Tversky, A., & Kahneman, D. (1981). The framing of decisions and the psychology of choice. Science, 211(4481), 453–458.