Words Matter

Forbes recently published an article on how framing risks has impacted the perception of whether or not we should open the economy.  From experience, I know that how information is presented matters as much as, or in some cases more than, the information itself.  I wanted to know why this happens.  Turns out it is due to a cognitive bias known as the framing effect.

According to Wikipedia: 

The framing effect is a cognitive bias where people decide on options based on whether the options are presented with positive or negative connotations; e.g. as a loss or as a gain.

The Framing of Decisions and the Psychology of Choice by Amos Tversky and Daniel Kahneman is considered the seminal study of this effect.  In their study they demonstrated that people would reverse their preferences based on how a problem is framed.   

They presented the following scenario:
​
​Imagine that the U.S. is preparing for the outbreak of an unusual disease, which is expected to kill 600 people. Which of the two programs would you favor?

Framing	Treatment A	Treatment B
Positive	Will save 200 lives	A 33% chance of saving all 600 people, 66% possibility of saving no one.

The majority of participants chose Treatment A. They then re-framed the options using negative language.

Framing	Treatment C	Treatment D
Negative	​400 people will die	A 33% chance that no people will die, 66% probability that all 600 will die.

In this scenario the majority of people chose Treatment D.  The outcome is the same in both scenarios, but participants changed their preference. Why did this happen? 

According to prospect theory we perceive a loss as more significant than a gain.  When making decisions we will prefer assured gains over hypothetical gains, but hypothetical losses over sure losses.  

people have a tendency to engage in risk-taking behavior when they are presented with a negative frame and more likely to avoid risks in positive frames. ​

Consider you are attempting to convince your company to take a risk.  The chance of success is low, but the benefit is high if you do succeed.  If you do nothing, you will experience a 5% loss in revenue.

How would you frame the problem to gain agreement to take the risk?

1. By taking this risk we have a 20% chance of increasing our revenue by 35%.  
2. By taking this risk we have a 20% chance of avoiding a 5% loss in revenue.

Because prospect theory tells us people are more likely to take on a risk to avoid negative outcomes than gain positive outcomes, the second presentation may be more convincing.

Why does all of this matter?  ​Most of our decision making is prone to bias.  Understanding bias will help you communicate more effectively and avoid falling into traps yourself.