More and more, I am becoming convinced that the idea of being truly data-driven is an extremely rare thing. I say this because, as I study the aspects that interfere with human decision making, the idea that a person makes a purely rational decision based on data seems more and more distant. In fact, I am more convinced of the opposite, that decisions are emotional and physiological in the first place, and rational second.
In this post, I want to introduce you a new concept that I recently learned and that has contributed to forming this opinion. It’s a concept that, unconsciously, I had already been applying in my day-to-day life, and I imagine that you have been too. But now, I understand why it works, and I have started to use it more consciously.
This concept will give you greater power of influence and persuasion, and it will contribute to further develop you independent thinking mindset. I am talking about the framing effect.
Stay with me.
What is Framing Effect
The framing effect is a cognitive bias where people’s decisions are influenced by the way information is presented. Just like a painting, the frame is how the information is presented and it draws attention to something.
This concept falls under the broader umbrella of cognitive biases, which are biases that often arise from our brain’s attempt to simplify information processing. Basically, they are rules of thumb that help us make sense of the world and reach decisions with relative speed.
The experiment
Daniel Kahneman and Amos Tversky introduced the concept in the 70/80s. Their work laid the groundwork for understanding how the framing of information can significantly influence our decision-making processes.
The classical example of the concept is found in their research, where in an experiment participants were given a choice between two treatments for people that were affected by a deadly disease.
Consider the scenario that 600 people are infected by a deadly disease and you have to choose between two possible treatments, based on the results they’ll have.
Which of the following treatments you would choose:
- Treatment A: results in 200 people guarantee survival
- Treatment B: have a 1/3 chance of everybody surviving
You have to choose one of the two treatments above. Which one would you choose?
People tend to choose a guarantee positive outcome versus the one the offers a chance. Therefore, treatment A will be preferred for most people.
Now, lets reframe the information presented.
Consider the same scenario of 600 people being infected by a deadly disease and you have to choose between to possible treatments. Which of the following treatments would you choose now:
- Treatment A result in 400 people guarantee death
- Treatment B have a 2/3 chance of everybody dying
In this case, people will choose the treatment B as they will try to reduce the total possible loss.
One thing that you may have noticed is that both treatments, A and B, actually result in the same outcome, in both scenarios. What we are changing is only the framing of the alternatives.
In the first scenario, the framing is around positive outcomes, ie. survivals. In this case, people will be risk averse and tend to choose the guaranteed option. Whereas in the second scenario the framing is around negative outcomes (deaths), and people will tend to be risk seekers and avoid absolute loss.
Every time I run the scenarios from these study in my head, trying to make a decision, I confirm that the framing effect really exist. I can feel it in my guts the tendency to prefer one of the options, even knowing they are the same. How about you?
Why Does the Framing Effect Occur?
The reason for this behavior to occur ties back to another well-studied cognitive bias: risk aversion. Kahneman and Tversky’s Prospect Theory explains that individuals value gains and losses differently.
We are typically more sensitive to losses than to the equivalent gains. This asymmetry makes us more susceptible to how choices are framed.
That means that, if a decision is framed in terms of losses, we’re likely to take greater risks to avert them. Conversely, if a decision is framed in terms of gains, we may prefer the sure thing over the gamble, even if the gamble has a higher expected value.
Therefore, this behavior will depend on each person’s utility model, that is, depending on what is on stake for them, they will be more or less risk averse. But, one thing is for sure: people measure negative and positive outcomes in an asymmetrical manner, giving losses a higher weight in comparison to gains.
A simple example: losing U$1.000 will have an impact on you that is not proportional to the impact in earning the same amount of money. To compensate the loss and have the same impact on you, it would be probably necessary to earn more than US$1.000, and this additional amount is what varies between people.
The Cost of Not Understanding Framing
Failing to recognize the framing effect can have substantial repercussions for you, your business and professional life.
Your boss, investors and team may reject a profitable project due to the way you are presenting information. Conversely, you may not be getting enough buy-in to an initiative that you believe the organization should pursue.
It can be worst: you may be inadvertently subject to other peoples’ interest.
That is, not knowing about this concept can make you subject to other people that are intentionally framing information according to their interest. Therefore, it is imperative to understand how the information is being presented to you and question the frame as well as the data itself in order to be an independent thinker and not manipulated.
On the other hand, knowing about this concept can give you some sort of edge in discussions and decisions, as you can used to favor towards your interest.
Practical Applications to Decision Making
Ok, so now lets dive into some examples on how framing can play a critical role in business environments, influencing everything from investment decisions to marketing strategies.
Here are some examples I’ve seen in my life of situations in which framing played a key role:
1) A sales team is evaluating the performance of a new product
If results are framed in terms of units not sold, the business might infer the product isn’t successful, potentially leading to its premature discontinuation.
However, if the results focus on the consistent month-on-month growth in sales figures, the team may conclude the product is gaining traction and invest further.
Relative growth shows certain gains > possible gain with absolute numbers without comparison
2) A business facing resource allocation decisions (aka. budgeting)
For the sake of example, consider a company contemplating an upgrade its technology infrastructure. When the investment is framed as avoiding the risk of falling behind competitors (negative framing), the company might be more inclined to act quickly.
However, if the same investment is presented as an opportunity to be at the forefront of industry innovation (positive framing), it could lead to more careful consideration and planning.
Falling behind is a possible loss > possible gain of being ahead of competition
3) A sales pitch or value proposition to a client
Your website says many positive things that your product offers but the reality is that those are promises, and people not necessarily believe on them.
Now, start offering a money-back guarantee and things start to be more certain. Alternatively, you can show that the status-quo (not doing nothing) is a certain loss.
Money-back contributes to certain gain > possible gain of value proposition
These are just a few examples but there are many other situations that it can be applied. Think about your annual budget allocation, project analysis, roadmap definition, strategic plans and everything that involves a decision.
Understanding the framing affect opened my eyes to the fact that every information that is presented to you was subject to framing by someone. The information you’ve got to make decisions are not pure, raw facts about the reality. The moment they are processed into information presented to you, they might be already promoting bias.
Final Words
In the process of being an independent thinker, better professional and valuable citizen to your community, you have to be ahead and fully comprehend how decisions are made and that they depend in so many things that are not pure rationality.
The key point I wanted you to reflect on with this article is that even though information can be very clear in what it says, in the context of our daily working lives someone will choose how to frame it. Therefore, no matter what the data says, it will reach you with some sort of bias.
I hope you found this article on the framing effect both informative and practical. Share it with those who you thing will find it equally valuable.