• Notes on a Nobelist, Part III: Kahneman on Framing

    This is the third post in a three-post series that summarizes Daniel Kahneman’s Nobel lecture as printed in The American Economic Review in December 2003 (full free version). The first post was on heuristics of judgement and the second was on choice with risk. This post is about framing effects. Most of what follows is a paraphrasing of Kahneman’s words. Comments that are more fully my own are [in brackets].

    The framing effect is observed when different but informationally (factually) equivalent presentations lead to different outcomes. The effect is achieved by alteration of the salience of different characteristics. [This idea has become well-known through intense media focus on political and issue polls and how their outcomes differ by phrasing.]

    A nice example is suggested by Thomas Schelling in his book Choice and Consequence: Are you morally offended by tax deductions? I suspect not. What do you think of a tax policy that allows a larger reduction in taxes for the rich than the poor? Abhorrent, no? In fact, that’s exactly the result of tax deductions. This is framing at work.

    Kahnmen explains the principle of framing as “the passive acceptance of the formulation given.” This leads to the apparent preference of the default option. For instance, enrollment of organ donation programs is substantially higher when individuals are assigned to it and need to opt out as opposed to excluded unless they opt in. Clearly framing is inconsistent with assumptions of rationality.

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