Framing

. Narrow framing = treats each decision separately. It increases the emotional reaction to losses and decreases the willingness to take risks. Encourages a focus on short-term outcomes and this results in frequent changes of decisions and reduced performance

. Broad framing = treats decisions as part of a portfolio or group approach. It blunts the emotional reaction to losses and increases the willingness to take risks. Encourages a focus on long-term outcomes and usually results in better decisions and outcomes.

NB The pain of frequent small losses exceeds the pleasure of equally frequent small gains

. Emotionally loaded words quickly attract attention; with bad words, like crime, war, etc, attracting attention faster than do words like peace, love, etc. Even though there is no real threat, words can create a picture of an event. The mere reminder of a bad event is treated as threatening and can evoke an emotional reaction. For example, statements of opinion that strongly disagree with your own can be seen as a threat.

. Some examples on the importance of framing, ie words used

- the results of a soccer match, eg "Italy won"/ "France lost". Do these statements have the same meaning? They can evoke markedly different emotional responses and can have different meanings

- lotteries - a bad outcome is more acceptable if it is framed as the cost of lottery ticket that did not win than if it is simply described as losing a gamble, ie losses evoke stronger negative feelings than costs

- fuel stations - charge different prices for cash or credit purchases, ie cash is cheaper. It is called a cash discount, not a credit surcharge. People will more readily forego a discount and pay a surcharge

- "...The two may be economically equivalent, but they are not emotionally equivalent..."

- Daniel Kahneman 2012

- mortality - 90% survival sounds encouraging while 10% mortality sounds frightening

- opting in and opting out clauses - it is the best indicator of whether people will donate organs or not. The opt-out has a significantly higher adoption rate than the opt-in situation

. Choices are not reality-bound. The tendency to approach or avoid are revoked by the words used, ie loss v. gain, keep v. lose, etc. Our preferences are frame-bound rather than reality-bound. Risk-averse and risk-seeking preferences are not reality-bound. Preferences between the same objective outcomes with different formulations.

. Framing effect = people are more likely to choose the sure thing in the keep frame and more likely to accept the gamble than the loss. Even professionals react the same way as non-professionals. Your moral feelings are attached to the frames, ie their description of reality rather than to reality itself.

. Broadening frames leads to more rational decisions; conversely, narrowing frames leads to less rational decisions

. Cost-loss discrepancy = something is framed as a choice between a sure loss and a risk of greater loss, eg, insurance; losses are more aversive than costs

. Dead-loss effect = an individual's subjective state can be improved by framing negative outcomes as costs rather than as losses, eg paying a sport's membership fee and then experiencing an injury that means playing the sport is painful, many people will continue to endure the pain and play the sport as they have paid the membership fee (the fee would be a dead loss if the subscriber stopped playing)

Prospect theory = human beings are best understood as being risk-adverse when making a decision that offers hope of gain but risk-seeking when making a decision that will lead to a certain loss.

Framing = how people react to a choice depending on whether it is presented to them as a risk or a gain.

The brain was not designed to calculate the probabilities in complex situations like flying an aeroplane. Thus people who fly aeroplanes are susceptible to sensory illusion, ie a pilot, without instruments, who flies into clouds as an average life expectancy of around 3 minutes.

People's minds cope with loss by drifting into fantasy places where loss never occurs

Areas of interest

- studying rules of regret

- understanding people's anticipation of the unpleasant emotion

- how people can do the events that have already happened

- understand states of frustrated hope, relief or regret (are they important aspects of the experience of consequences? It is suspected that there is a major bias against acknowledgement of the true impact of such experience)

"...it is expected of mature individuals that they should feel the pain or pleasure that is appropriate to the circumstances without undue contamination by unrealistic possibilities..."

Daniel Kahneman and is quoted by Michael Lewis 2016

How the above areas of interest impact on judgement and decision making:

there could be a 4th heuristic (simulation) in addition to availability, representiveness and anchoring. Simulation is about the power of unrealised situations contaminating people's minds. As we go through life, people run simulations of the future, eg what ifs. Judgements and decisions can be based on these imagined scenarios, but some scenarios are easier to imagine than others. The mind develops its own mental rules on how to handle past and future events.

Investigate how people create alternatives to reality by undoing reality, ie discover the rules of imagination like constraints on the freedom of fantasy. Sometimes it is a odd mixture of fantasy and reality. Ssometimes it has been called "counterfactual emotions" like regret, frustration, envy, etc. The emotions of unrealistic possibilities are the product of 2 variables

i) the desirability of alternatives

ii) the possibility of the alternatives

"... Experience that leads to regret and frustration were not always easy to undo. Frustrated people need to undo some feature of their environment, while regretful people need to undo their own actions..."

Michael Lewis 2016

"...the basic rules of undoing, however, apply alike to frustration and regret...... they require a more or less plausible path leading to the alternative state..."

Daniel Kahneman as quoted by Michael Lewis 2016

Envy is different as it requires no imagination.

"...To experience envy, it is sufficient to have a vivid image of oneself in another person's shoes; it is not necessary to have a plausible scenario of how one came to occupy those shoes..."

Daniel Kahneman as quoted by Michael Lewis 2016

"...Imagination wasn't a flight with limitless destination. It is a tool for making sense of a world of infinite possibilities by reducing them.......the rules of undoing. One rule was that the more items there were to undo in order to create some alternative reality, the less likely the mind to undo them..."

Michael Lewis 2016

"...the more consequences an event has, the larger the change that is required in eliminating that event..."

Daniel Kahneman as quoted by Michael Lewis 2016

For example, people find it easier to undo the events around somebody killed by a bolt of lightning rather than by a massive earthquake; there are more events to undo around the earthquake than the lightning.

Another rule - events become gradually less changeable as they recede into the past, ie with the passage of time, the consequence of any events accumulated and left more to be undone. The more to be undone, the less likely it is to happen.

The most important rule is around to how to handle what was surprising or unexpected

"...in undoing some event, the mind tended to remove whatever felt surprising or unexpected - which was different from saying that it was obeying the rules of probability......it was easier to undo the unusual part of the story..."

Michael Willis 2016

For example, someone is killed in a car accident when they take a different route from normal. Most people think about if only the person had taken their normal route, rather than other possibilities like leaving earlier or later

 

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