Framing Bias: How to Make Better Decisions

Imagine that you walk into the grocery store to buy your favorite cereal (French Toast Crunch anyone?). You find the isle with the cereal and see that your cereal now has two versions:

  1. Contains 5% sugar
  2. 95% sugar-free!

Which version would you pick?

Though technically the options are identical, psychology studies have shown that the majority of people would select version 2. This is a fallacy is known as framing bias where our decisions are influenced by how the different options are framed.

Examples of Framing Bias

You’ll encounter framing bias pretty much everywhere where there exist multiple options. You may notice that you feel better about certain options based on how they are presented to you. Options presented in a positive light will seem favorable, like 95% sugar-free. Options presented in a more negative light seem bad, like 5% sugar.

A vaccine for a virus

Because of framing bias, people typically respond more favorably to a “98% success rate” for a vaccinethan a “2% failure rate”. That small bit of failure seems scary, but you won’t notice it as much when it comes from the more positive message of “98% success”. Just saying “success” sounds a lot better, and 98% is pretty high.

Increasing stock prices

A $2 stock has “gone up by 500%” vs the “stock price has increased by $10”. The second one seems small since it’s only $10. The average investor would overlook the stock if it was presented as in the second version.

But the two are mathematically identical, you get the same ROI. Good investors are able to recognize this and are more likely to buy the smaller-priced stocks — return is all that matters.

Warranties on electronics

It’s quite common for people at Best Buy or Apple to try to sell you warranties on electronics you buy. It’s usually presented as “if you break it, you will lose a $2000 laptop” and you can protect it for the “low low price of $300.”

But in today’s day and age, there’s a significantly less than 15% chance that your laptop will break. Paying 15% of the laptop price for a warranty is simply unreasonable.

Playing the lottery

Lotteries can be fun to play! But the odds are not in your favor at all. Many people see the lottery as “I have a small chance that I can win $50 Million!” The companies selling tickets have sold them that positive frame.

But when you take into account the fact that you pay $5 for each ticket and only have a 1 in 10 Billion chance of winning, then it’s clear from the math that you’re getting ripped off.

How to overcome framing bias

To overcome framing bias and make better decisions, the key is to reframe the options so that they are more rationally considered. Bring all the options into the same frame and you’ll be able to make the decision more rationally.

Let’s look at a few examples to make this more clear.

  • Stock prices: calculate the expected return-on-investment (ROI) of each potential investment. Compare the raw numbers directly.
  • Picking out groceries: Coming back to our cereal example, reframe everything so you can compare apples to apples (or in this case, sugar to sugar). Convert the “sugar-free” to the amount of sugar inside and you’ll see that they’re the exact same.
  • Warranties on electronics: Try to guesstimate the chance that the electronics you’re buying will break down in the next 5 years. You can get a decent number based on how often things have broken down in the past. Then multiply that chance by the price of the item. If it’s lower than the warranty, then the warranty it’s worth it.
  • Playing the lottery, casino, and other games: When doing any of these big gambles, be sure to look at both the upside and the downside to pick the best option. For example, one Casino game like Roulette might look cool and payout 35-to-1 for a win, but the house has a 5% edge of taking your money in the long run. If you play Baccarat instead (a fancy high-roller game often seen in Jame Bond movies!) the house only has a 1% edge.

This article is part of a mini-series on cognitive biases. Stay tuned for more! Check out the others so far here:

Substitution Bias: How to Make Sure You Don’t Miss the Details
Availability Bias: Don’t Let Your Surroundings Affect Your Decisions
Confirmation Bias: How to Be More Open to New Ideas
Anchoring Bias: How to Avoid Getting Ripped off on Salary
Loss Aversion: How to Take Calculated Risks
Hindsight Bias: How to Be Smart About Reviewing Your Past Decisions

Thinking, Fast and Slow by Daniel Kahneman

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