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A test of narrow framing and its origin

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  • Guiso, Luigi

Abstract

I provide a test of narrow framing to explain why individuals turn down small positive expected value lotteries. Participants in a large survey have been asked whether they would accept a small lottery of winning 180 euros with probability of 1/2 or losing 100 euros with the same probability. To half of the sample, randomly selected, the lottery question was asked at the beginning of the interview; the other half made the decision immediately after they were asked to think about and report their subjective probability distribution of future earnings. Consistent with narrow framing, I find that individuals that were induced to bring their earnings risk to mind before facing the decision are significantly less likely to turn it down. Furthemore, only those who actually say they are uncertain about their incomes are less likely to reject the lottery. I show that attitudes towards regret and reliance on intuition rather than reasoning are likely to drive the tendency to frame choices narrowly.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 7112.

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Date of creation: Jan 2009
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Handle: RePEc:cpr:ceprdp:7112

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Keywords: intuitive thinking; loss aversion; Narrow framing; reasoning; regret;

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  1. Guiso, Luigi & Jappelli, Tullio & Pistaferri, Luigi, 2002. "An Empirical Analysis of Earnings and Employment Risk," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(2), pages 241-53, April.
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Cited by:
  1. van der Heijden, Eline & Klein, Tobias J. & Müller, Wieland & Potters, Jan, 2012. "Framing Effects and Impatience: Evidence from a Large Scale Experiment," IZA Discussion Papers 7085, Institute for the Study of Labor (IZA).

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