Monday 7 March 2011

The Framing Effect and Bad Decision Making

A blogpost by Kash Farooq

I recently attended a Science London talk given by UCL Neuroscientist Dr Benedetto De Martino. The talk was titled “Decisions, Decisions, Decisions” and was about a phenomenon called the framing effect.

Due to the framing effect, the same option presented in different formats can change the decisions people make. This effect can influence anyone. It is particularly interesting when dealing with how risk is presented in medicine; present identical data differently and doctors can be influenced about the worth of a treatment.

Basically, the way a question is framed can influence how the question is answered.

There is a famous example that Dr. De Martino mentioned in his talk. It is from the 1981 paper “The Framing of Decisions and the Psychology of Choice” [PDF] by Amos Tversky and Daniel Kahneman:

Imagine that the U.S. is preparing for the outbreak of an unusual disease, which is expected to kill 600 people.  Two alternative programs to combat the disease have been proposed. Assume that the exact scientific estimates of the consequences of the programs are as follows:
  • If Program A is adopted, 200 people will be saved.  [72 percent]
  • If Program B is adopted, there is ⅓ probability that 600 people will be saved, and ⅔ probability that no people will be saved. [28 percent]
The percentages responses are given in brackets. Program A is a clear winner with 72% of the respondents selecting this option.
Now the question is asked differently – i.e. it is framed differently:
  • If Program C is adopted, 400 people will die. [22 percent]
  • If Program D is adopted, there is ⅓ probability that nobody will die, and ⅔ probability that 600 people will die. [78 percent]
This time, Program D is the clear winner with 78% of respondents selecting it.

However, Program B is identical to Program D. Also, Program A is identical to Program C. By just framing the question differently, you can consistently get a completely different response.

This is rather worrying. It seems to be very easy to confuse people with data. A dream situation for people trying to sell you things!

Is bad decision making evolutionary?

Bad decision making isn’t restricted to humans.

Decision-making has been studied in capuchin monkeys and it appears that the same mistakes are made by our primate cousins. Capuchin monkeys are New World primates – our last common ancestor lived about 35 million years ago.

White-faced capuchin monkey in Manuel Antonio National Park in Costa Rica, by Michelle Reback

 An experiment was designed that introduced currency tokens into their monkey world. The monkeys quickly learnt that they could hand tokens over to the different humans in the lab in return for grapes.

Next, a marketplace was created in which different humans provided different deals. For the same number of tokens, one human would give more grapes than another. Again, the monkeys quickly learned to go to the guy who was cheaper.

Finally, an element of risk was introduced. The monkeys were introduced to two salespeople who both appeared to be selling 3 grapes per token. However, one of the salespeople took away one grape every single time when handing over the products – the monkey always received 2 grapes from this salesperson. The other salesperson randomly took away either zero or two grapes – the monkey could end up with three grapes if it used this salesperson, but could also end up with just one grape.

So what did the monkeys do? Play it safe and always pick the guy who guarantees a 2 grape return. No, they play risky and go with the other guy.

And this is exactly the same thing that humans do when presented with a similar situation.

So, perhaps we can’t blame the bankers for the financial collapse? Perhaps risk taking in the financial markets is a consequence of evolution?

Nah...let’s still blame the bankers.

I highly recommend that you watch the full capuchin monkey TED video presented by Laurie Santos. She’s informative and very entertaining. Her talk covers other discoveries of other human-like behaviour such as the monkeys would try to steal tokens at every opportunity...

Kash Farooq blogs at The Thought Stash and you can follow him on Twitter @kashfarooq.  He recorded a version of the above report for episode 74 of the Pod Delusion - a podcast about interesting things.

1 comment:

Cedric Ashley said...

Very thought provoking and well worth watching.It explains why people often keep shares that go down and sell shares that go up, thus supporting the weak!