Behavioral Economics Framing Credit Union

Behavioral Economics Says People Are Easily Swayed – Want Proof?

Imagine the following scenario.  You are head of a team responsible for rolling out a new training program to prepare 600 students for college. Your research indicates two possible programs, each with different predicted outcomes.

       Program A - 200 students are accepted into college

       Program B - ⅓ chance that all 600 will be accepted into college and ⅔ chance that no student will be accepted.

Which option do you choose?

What if another two programs were suddenly presented?

       Program C - 400 students fail to get into college

       Program D - ⅓ chance that nobody will fail to get into college and ⅔ chance that everybody fails to get into college.

Yes, Programs A & C are the same, as are Programs B & D.  But Program A & B are presented as positive choices, while C&D are presented as loss choices. And that makes all the difference.  When Program A & B are presented most people chose A, but when faced with C & D, most chose D. 

Behavioral Economics (BE) calls this framing and it works because we are wired to hate losses more than we love gains (known as loss aversion).  When you frame a choice between two gains we tend to choose the less risky approach (take the sure thing), but when you frame it as the choice between two losses we tend to pick the more risky approach hoping to avoid any loss. 

What is really interesting is classic economics would tell you each of these programs averages out to 200 students going to college and therefore are all the same.  We’ve laid out this information in four different ways, but BE tells us we don’t absorb these facts equally.  That’s why understanding the framing bias, along with several other ‘supposedly irrelevant factors’, like anchoring, loss aversion, friction and social norms is so important when communicating with your consumers.

Use this knowledge to nudge your consumers and employees to smarter behaviors. 

Ready to Dig in Just a Little Deeper?

Register for the Understanding Behavioral Economics: the truth about decision making workshop

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