Definition
Framing effect shows that people's choices change based on whether options are described in terms of gains or losses, even when the underlying economics are identical. "90% survival rate" sounds better than "10% mortality rate" despite being the same statistic. In investing, framing affects risk perception, product selection, and trade execution.
lightbulb Example
Two investment options: A) "80% chance of preserving your capital" vs B) "20% chance of losing your entire investment." Both describe the same product, but most investors choose A due to positive framing.
verified_user Key Points
- Identical facts, different presentation = different decisions
- Gain framing promotes risk-averse behavior
- Loss framing promotes risk-seeking behavior
- Marketing extensively exploits framing effects