Framing effects in business are hard to avoid even among entrepreneurs and people who are sophisticated with numbers and have experience in dealing with success with decision biases and complicated career decisions.
Prototypical business framing manipulation
In a clever study a group of business researchers looked for framing effects among economic students registering for an academic conference, none of whom knew they were in an experiment. Like for many conferences for entrepreneurs, this conference had two registration fees, the fee for early registration before a deadline was $50 less than that for late registration after a deadline.
Half of the potential registrants received email instructions that included the reminder that the discounted conference fee for early registration is available until July 10th. The other half received instructions with a reminder that the conference fee will include a penalty for late registration after July 10. The actual charges for early and late registration were identical between the groups.
This is a prototypical business framing manipulation. A discount for early registration is exactly the same as a penalty for late registration. There is no objective difference in the discount and penalty frames but those frames still affect behavior. Yet, of the students for whom early registration was described as a discount 33% missed the deadline, but when late registration was described as a penalty only 7% missed the deadline. Changing the frame changes behavior even among entrepreneurs and economists.
The second best, doesn’t feel like success
Now I want to move to the idea of value weather you are an entrepreneur or you are just building your career with some success. Framing effects can change what’s important to us whether outcomes seem good or bad. I’ll give you two examples from very different domains. In swimming, the 200 m Individual Medley is one of the marquee events. It requires mastery of all four competition strokes, the endurance of a distant swimmer in the finishing kick of a sprinter.
In the 2008 Beijing Olympics the three swimmers in the middle lanes were the Americans Michael Phelps and Ryan Lochte and the Hungarian Laszlo Cseh. These three were the top of the field and when the race ended they all three earned olympic medals Phelps the gold, Cseh the silver and Lochte to the bronze. Phelps set a world record and Cseh time set a record for European swimmers.
In the official photograph of the medal, the gold medalist Phelps stands at the center beaming as he holds up his medal. Lochte stands to Phelps’ left holding his bronze medal with an even bigger smile on his face and Cseh stands of Phelps’ right holding up a silver medal and looking despondent. even though he just won a silver medal one swimming premier events, even though he set a personal and European record and even though he’s the second best swimmer in the whole world his face is blank and he stares off into the distance, seemingly closer to despair than joy.
Why the bronze medalist is happier than the silver medalist
This is not an isolated case if you look through the photographs of Olympic medal ceremonies will see a consistent pattern. Again and again the gold medalist seemed very happy, the silver medalist seemed neutral to unhappy in the bronze medalists are beaming. It makes sense of the gold-medal’s are happy they got the best outcome, but why are the bronze medalist happier than the silver medalist?
Answering that question was a topic of a remarkable study by the psychologist Victoria Medvec and her colleagues. They took videotapes of Olympic events and extracted footage of individual athletes right of the time medalists learning outcome of their events that is when they learn whether they finished first second and third. Then they had non-sports fans rate the emotions of each medalist. The ratings were consistent and clear: the bronze medalist were happier than the silver medalist.
The researchers also studied video footage from the medal ceremonies which typically are held a few minutes to a few hours after the conclusion of the event. Again the bronze medalist were rated as happier. One possible explanation for this effect comes from the idea of a reference dependence. The same researchers examined the transcripts of interviews with a different medalists.
Silver and bronze medalists have different reference points for success
The silver medalist were more likely to compare themselves to the gold medalist, they described how they almost won how they could have been a gold medalist. The bronze medalist were more likely compare themselves to those competitors who didn’t win anything. They recognize that they could have done much worse and they were happy to have at least one some medal.
Silver and bronze medalists have different reference points. The silver medalist is a reference point of a gold medal and they are disappointed, they regret not having done more. The bronze medalist is a reference point of no medal at all and they are elated, they are satisfied with their performance. Now I’m describing is a typical fact but there are exceptions.
Some silver medalist celebrate ecstatically they take real joy when they do much better than they had expected and someone who expected gold, but in up with bronze could still be disappointed despite her place among the world’s best but the general principle holds nevertheless. The same objective outcome can lead to disappointment or joy depending on how it’s frame.