How rational are you series: Framing effect experiment

The way we frame our questions as wins or losses has an impact on how we respond to investment decisions. We put this to the test with some interesting questions about retirement income.

Video: It depends how you ask

THE EXPERIMENT: We asked participants two questions, each question had the same meaning but was phrased differently. One was framed positively, the other negatively. How would you react?

Check out our video to find out more.

How would you answer the same question, asked differently?

We come across the 'Framing Effect' very often in life; we use it ourselves knowingly and subconsciously all the time. When we want to get our way, we will 'frame' our argument in a manner that is most likely to get the result we want.

Normally people avoid risk when a situation is positively framed but will look for risk when it is negatively framed.

Decision making will always be impacted by the way choices are framed, this makes the 'Framing Effect' one of the most important economic behavioural factors. Naturally this impacts on our financial decision making.

An example of the framing effect is of student registration. 93% of PhD students registered early when a penalty fee for late registration was emphasised.

While only 67% did so when this was presented as a discount for earlier registration.1

We put the Framing Effect to the test by asking a question about retirement income – but in two different ways. Our participants on Sydney's sunny Bronte Beach had a much less sunny outlook when the question was framed in a more negative light.

The results show why it's important to consider decisions objectively from every angle, and seek advice from the experts when it comes to planning your financial future.

1Gächter et al. 2009

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