Behavioral Bias: The Issue Of Framing

Bias: Framing

Quick Definition:(Via Wikipedia & Behavioral Finance Net)

“The term frame dependence means that the way people behave depends on the way that their decision problems are framed.”
Shefrin (2000)

Framing biases affecting investing, lending, borrowing decisions make one of the themes of behavioral finance. Preference reversals and other associated phenomena are of wider relevance within behavioural economics, as they contradict the predictions of rational choice, the basis of traditional economics.

Extended Definition: (Via Behavioral Finance. Net)

“Empirical studies show that decisions deviate from the predictions of expected utility theory and violate their axiomatic foundations. Hence, many generalizations to non-expected utility theory have been developped. But empirically they did not provide an improvement over the standard approach. In this paper random errors are integrated in an expected utility framework. Such errors occur when agents have limited information processing capacities. A performance criterion is provided to measure the expected success of behavioral strategies. A special class of robust decision rules and its properties are analyzed. It is argued that in case of bounded rationality the evolution will select heuristics from an open class of decision rules due to performance differences.”

Additional Papers & Research On The Framing (Bias):

The Framing of Decisions and the Psychology of Choice – By Tversky, Amos; Kahneman, Daniel
On the Limits of Framing Effects: Who Can Frame? – Via Druckmann
Effects of Framing on Evaluation of Comparable and Noncomparable Alternatives by Expert and Novice Consumers – Via
James R. Bettmanand & Mita Sujan
Rational choice and the framing of decision. Journal of Business. – TVERSKY, A. and D. KAHNEMAN, 1986

About Miguel Barbosa

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16. June 2009 by Miguel Barbosa
Categories: Behavioral Economics, Curated Readings | Leave a comment

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