business career entrepreneur success

The Framing Effect in Business

In the previous article we considered a first key tool for making better decisions in business and in life: pre-commitment. That often involves making a binding choice now so that your future self won’t make a bad career or personal decision. But, sometimes the problem doesn’t lie with your future entrepreneur self, so you’ll have to use another tool that changes the way you approach a decision with success.

The core features of the business decision problem don’t change

In today’s article I’ll introduce that second key tool. It’s called framing, and understanding it will help with your business and your career success. A framing effect – arises when people make different choices based on how a decision problem is presented or interpreted. In framing the core features of the decision problem don’t change, people and entrepreneurs still have the same options in the same potential success outcomes, but something changes in how people think about that decision problem leading to different choices.

If an analogy helps, think about framing literally. Not necessarily in a business environment. Get out of your entrepreneur mindset and suppose that you are a museum curator hanging a valuable painting on the wall, people come to see that painting not the frame around it. If you asked them whether the frame matters for your success or in their career they’d probably say no. They hadn’t even noticed it, but the frame does matter different frames can emphasize different features of a painting making it seem larger or smaller more contemporary or more conservative.

Balancing probability and reward of magnitude in business choices

So your task as a business curator is to match the frame to the experience you desire for your visitors, you can’t change the painting but you can change its frame. There are multiple ways in which deciding with success can be framed. In economic and career decision-making, frames can alter how we balance different factors by probability versus reward of magnitude. In consumer choices and  framing shapes what’s important to us in our decisions, whether we prioritize the safety features or the engine performance of a new car or we make a different business choice.

And when we plan for the future framing influences what goals we pursue, whether we seek to obtain a good outcome or avoid a bad outcome. Because of the diversity of ways that framing and influences our decisions throughout this next articles and synthesize some recommendations for you as an entrepreneur. I’ll begin by providing some examples of framing to give you a sense of just how powerful it can be for your success. I’ll then explore three types of frames: value frames, temporal frames and the goal frames before I end, with overall recommendations about how we can use framing to make better decisions.

Choosing between a safe and a risky business or career option

Let’s start with the classic example of framing which involves a single decision between a safe option and a risky option. Suppose that you are the leader of a disease response team preparing for this year’s influenza outbreak. You expect something like 3000 people to be infected with a potentially fatal form of influenza and your team is preparing potential vaccines. The scientists on your team come to you with two candidate vaccines: the first vaccine will work on any strain of influenza but only partially. Your scientists are very confident that if you choose this vaccine about 1000 of those 3000 people will survive.

The second vaccine will work extremely well guess one strain of influenza, but not as well against another more common string. Your scientists indicate there would be a one in three chance that all 3000 people will survive, but at two in three chance that none of those infected would survive. I presented this problem in what is called the survival or gain frame. All the outcomes were described in positive terms the number of survivors and your success in decision making. When people hear this problem in the survival frame they tend to pick the first safer option, the one with a known number of survivors.

The basic idea of a framing effect for an entrepreneur

But, you can also present the same problem in a more negative frame. You could emphasize the deaths from the disease this is called the loss frame. Delivering the first vaccine will sentence 2000 people to die whereas the second vaccine has a one in three chance that no one will die. These different frames don’t change the raw facts of the decision, but they can have very large effects on behavior. In the original study by the behavioral economists Amos Tversky and Daniel Kahneman in the gain frame about three quarters of people chose the safe option in the loss frame however three quarters of people chose the risky option.

That means that half of the people in the study flipped their choices between two mathematically equivalent decisions based only on how that decision information was presented. Similar biases can be shown when people make decisions about money. We can replace the numbers in the above example with dollar amounts and replace. Surviving and dying with winning and losing money and the same basic pattern holds: people are more risk-averse when trying to protect monetary gains than when trying to prevent monetary losses.

So, that’s the basic idea of a framing effect: it’s a change in people’s business decisions when the same objective information is presented in two different ways.