ABSTRACT
People seem to be fooled by decision frames. That is, the choices they make are influenced by the frame of the question. One such frame is the positive/negative context. Whether the frame or context is people saved versus deaths or profits versus losses, people prefer the low-risk option in the positive frame and the risky alternative in the negative frame, which is predicted by prospect theory.
Thinking mode may also be a factor. Intuitive decision makers behave in a manner consistent with prospect theory. However, those who use a more analytical process often do not. Thus, frames may influence people differently.
Frames impact investors too. The current design of many 401(k) plans use decision frames like opt-in and many investment menu choices that do not foster plan participation. Better designs can help people make better choices. However, note that the frame we see the most often in the media is one of a very short-term focus. The attention of TV, newspapers, and the Internet is always on how much the market moved today. We rarely are put into the frame of how asset classes have moved in the last ten years. It helps to reframe information in broader terms, whether it be investment focus, pension choices, or payday lending.
