BazermanMoore

82 Chapter 4: Framing and the Reversal of Preferences
CONCLUSION AND INTEGRATION
The categories of framing effects and reversals of preference covered in this chapter
demonstrate some of the key findings in the field of behavioral decision research. The
Asian Disease Problem that opened the chapter is a particularly important problem in
the history of the field. Prior to this result and the development of Kahneman and
Tversky’s (1979) prospect theory, behavioral decision literature was largely ignored by
economists. Simon’s concept of bounded rationality, discussed in Chapter 1, was explained
away as a rational strategy, adapting for the costs of search. The heuristics and
biases explored in Chapter 2 were discounted for similar reasons. But the framing
effects described in this chapter showed people making dramatically different decisions
based on what even economists had to agree was normatively irrelevant information.
The Asian Disease Problem, which challenged the dominant economic paradigm
more than twenty-five years ago, is a cornerstone of the type of data that create a productive
dialogue between psychologists and economists. The numerous other framing
effects that have been documented continue this tradition and have contributed to the
growth of the fields of behavioral economics and behavioral finance.
One question that often emerges from these studies is whether or not these effects
generalize to the real world. Four editions ago, Max was optimistic about this question,
but did not have the data to be convincing. Since then, numerous excellent studies have
used framing effects to explain why taxi drivers drive more hours on slow days than on
busy ones (Camerer, Babcock, Loewenstein, & Thaler, 1997), why so many people pay
for line insurance on their telephones (Thaler & Ziemba, 1988), the conditions under
which negotiators are most likely to reach an impasse (see Chapter 10), and a wide
variety of investment mistakes (the topic of Chapter 8). Camerer (2000) also does an
excellent job of summarizing the strong evidence of the relevance of framing effects in
the real world.
Why does framing exert such a powerful effect on our judgments? The answer
cannot be the same one that we used to explain the biases covered in Chapter 2 and 3.
The biases in those chapters result from heuristic shortcuts in judgment. By comparison,
the striking aspect about framing and reference-point effects is that they suggest
the presence of underlying mental processes that are more complicated than a rational
decision maker would employ. Rational decision makers would simply seek to maximize
the expected value of their choices. Whether these outcomes represent gains or losses
would be irrelevant, and consideration of the outcome relative to the status quo would
be a superfluous consideration. Instead, we adjust to the status quo, and then think of
changes from that point as gains or losses.
Rayo and Becker (2007) present a persuasive explanation for why evolution programmed
us with extra machinery that impairs our decisions. According to their explanation,ourrelianceonframesandreferencepointstoassessoutcomesisanelegant
solution to a problematic biological constraint. The constraint is that our ‘‘subjective
utility scale’’—our ability to experience pleasure and pain—is not infinitely sensitive.
Was Bill Gates’s 50th billion dollar as satisfying as his first? Certainly not. The limited
sensitivity of our subjective utility scale is precisely the reason why we experience declining
marginal utility for both gains and losses, as we discussed earlier in this chapter.