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The tendency to draw different conclusions from the same information depending on how it is presented (i.e., with positive or negative connotations).
- People make risk-avoidant choices if the options are positively framed
- People make loss-avoidant choices if the options are negatively framed.
- Prospect Theory suggests that loses are perceived as more significant than an equivalent gain.
- A sure gain is preferable to a probable gain. A probable loss is preferred to a sure loss. Thus, we look for information about certain gains.
- This can also be attributed to the Availability Heuristic, and our own emotional state.
- Information acts as the counter to this. More informed and mindful subjects are less prone to the framing effect.
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This effect is for better or worse. It can lead to over or underestimation, but it can be a powerful tool in persuasion as we frame something positively.
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Contrast Effect - an object is perceived as being more or less valued when perceived immediately after a stimulus of lesser or greater value in the same dimension.
- For example, a person appears more attractive than that person in isolation when preceded by a less attractive person.
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Decoy Effect - when deciding between two options, an unattractive third option can change the perceived preference between the other two.
- The third option, the decoy, is asymmetrically dominated by the target and its competitor. The target is better than the decoy on all fronts, while the competitor is partially better than the decoy.
- It is a type of nudge, an intervention that steers individuals towards the target choice. This is because decoys make subtle changes to the situation or environment. They affect us subconsciously.
- Decoys also help us rationalize our choices. Clearly the target choice becomes the better choice with the decoy around.
- When people make decisions, their goal is not to pick the correct option, the goal is to justify the outcome of a choice they’ve already made.
- Decoys provide a rationale for people to choose the targets by highlighting the pros to choose the target.
- The paradox of choice is related to this as the decoy makes us less certain about our choice.
- Thus, decoys capitalize on loss aversion by manipulating our reference point regarding the competitor and its disadvantages.
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Default Effect - the tendency for an agent to generally accept the default option in a strategic interaction.
- There is a change in how likely agents choose an option if it is set as the default (requiring no active choice) than when it is not default.
- A social default effect manifests as people being more likely to choose what they observe others choosing.
- People are also more likely to treat choices that require less justifications as defaults.
- It can be explained as a heuristic to avoid too much cognitive effort.
- It can also be explained as minimizing the costs and potential losses that might be incurred from choosing the non-default option. This is especially apparent if it is perceived the default came from a recommendation or the default carries some signifier about an affordance.
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Denomination Effect - people are less likely to spend larger currency denominations than their equivalent value in smaller denominations.
- This is because larger currencies are viewed as more valuable even compared to an equivalent amount in smaller denominations. Larger denominations are perceived as less replaceable.
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Distinction Bias - the tendency to view two options as more distinctive when evaluating them simultaneously than when evaluating them separately.
- We over-examine and over-value the differences between things as we scrutinize them.
- Part of what gives rise to this bias is the disconnect between our prediction of which option will lead to the most favorable outcome and our actual experience of choosing that option.
- We are also prone to cherry picking which features we use as our basis for judgment.
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Domain Neglect Bias - the tendency to neglect relevant domain knowledge in interdisciplinary problems.