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Choices, Values, and Frames

In: HANDBOOK OF THE FUNDAMENTALS OF FINANCIAL DECISION MAKING Part I

Author

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  • Daniel Kahneman
  • Amos Tversky

Abstract

We discuss the cognitive and the psychophysical determinants of choice in risky and riskless contexts. The psychophysics of value induce risk aversion in the domain of gains and risk seeking in the domain of losses. The psychophysics of chance induce overweighting of sure things and of improbable events, relative to events of moderate probability. Decision problems can be described or framed in multiple ways that give rise to different preferences, contrary to the invariance criterion of rational choice. The process of mental accounting, in which people organize the outcomes of transactions, explains some anomalies of consumer behavior. In particular, the acceptability of an option can depend on whether a negative outcome is evaluated as a cost or as an uncompensated loss. The relation between decision values and experience values is discussed…

Suggested Citation

  • Daniel Kahneman & Amos Tversky, 2013. "Choices, Values, and Frames," World Scientific Book Chapters, in: Leonard C MacLean & William T Ziemba (ed.), HANDBOOK OF THE FUNDAMENTALS OF FINANCIAL DECISION MAKING Part I, chapter 16, pages 269-278, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9789814417358_0016
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    Cited by:

    1. Javier Cifuentes-Faura & Renaud Francesco, 2022. "Microeconomics of intertemporal choice in zero-space during Covid-19: a behavioral economics perspective," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 23(4), pages 559-563, June.
    2. Jos'e Cl'audio do Nascimento, 2019. "Behavioral Biases and Nonadditive Dynamics in Risk Taking: An Experimental Investigation," Papers 1908.01709, arXiv.org, revised Apr 2023.
    3. Nicole Stein & Stefan Spinler & Helga Vanthournout & Vered Blass, 2020. "Consumer Perception of Online Attributes in Circular Economy Activities," Sustainability, MDPI, vol. 12(5), pages 1-16, March.
    4. Michail Chouzouris & Panos Xenos & Platon Tinios, 2022. "Becoming ‘Homo Economicus’ as Learned Behavior among Numerate Greek University Students," Social Sciences, MDPI, vol. 11(5), pages 1-18, April.
    5. Javier Cifuentes-Faura & Renaud Di Francesco, 2022. "Nanoeconomics of Households in Lockdown Using Agent Models during COVID-19," Sustainability, MDPI, vol. 14(4), pages 1-13, February.
    6. Jaehyeon Ju & Daegon Cho & Jae Kyu Lee & Jae‐Hyeon Ahn, 2021. "Can It Clean Up Your Inbox? Evidence from South Korean Anti‐spam Legislation," Production and Operations Management, Production and Operations Management Society, vol. 30(8), pages 2636-2652, August.
    7. Joseph,George & Ayling,Sophie Charlotte Emi & Miquel-Florensa,Pepita & Bejarano,Hernán D. & Cardona,Alejandra Quevedo, 2021. "Behavioral Insights in Infrastructure Sectors : A Survey," Policy Research Working Paper Series 9704, The World Bank.
    8. Wafa Elias, 2021. "The Effectiveness of Different Incentive Programs to Encourage Safe Driving," Sustainability, MDPI, vol. 13(6), pages 1-14, March.
    9. Acconcia Antonio & Beraldo Sergio & Capuano Carlo & Stimolo Marco, 2023. "Public Subsidies and Cooperation in Research and Development. Evidence from the LAB," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 23(3), pages 727-760, July.
    10. Paul M. Gorny & Petra Nieken & Karoline Ströhlein, 2023. "He, She, They? The Impact of Gendered Language on Economic Behavior," CESifo Working Paper Series 10458, CESifo.
    11. Jean-François de Moya & Jessie Pallud & Samuel Fosso Wamba, 2021. "Impacts of Risks Over Benefits in the Adoption of Self-Tracking Technologies," Post-Print hal-03868890, HAL.
    12. Dimas Budi Prasetyo & Lury Sofyan, 2021. "Altering Intention to Mudik during COVID-19 Pandemic: A Salient Cue and Simple Reminder Nudge," Psychology and Developing Societies, , vol. 33(1), pages 121-145, March.
    13. Kusumah, Echo Perdana & Agustina, Duwi, 2018. "Cassava Price Competitiveness and Cultivation Interest," MPRA Paper 89434, University Library of Munich, Germany.
    14. Petit, Joshua D. & Needham, Mark D. & Howe, Glenn T., 2021. "Cognitive and demographic drivers of attitudes toward using genetic engineering to restore American chestnut trees," Forest Policy and Economics, Elsevier, vol. 125(C).
    15. Hanumanthrao Kannan & Bryan L. Mesmer & Christina L. Bloebaum, 2020. "Incorporation of risk preferences in a value‐based systems engineering framework," Systems Engineering, John Wiley & Sons, vol. 23(2), pages 237-257, March.
    16. Sarah Cohodes & Sean P. Corcoran & Jennifer Jennings & Carolyn Sattin-Bajaj, 2022. "When Do Informational Interventions Work? Experimental Evidence from New York City High School Choice," Opportunity and Inclusive Growth Institute Working Papers 057, Federal Reserve Bank of Minneapolis.
    17. Herjanto, Halimin & Amin, Muslim & Purington, Elizabeth F., 2021. "Panic buying: The effect of thinking style and situational ambiguity," Journal of Retailing and Consumer Services, Elsevier, vol. 60(C).
    18. Rolls, Edmund T., 2019. "Emotion and reasoning in human decision-making," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 13, pages 1-31.
    19. Hofmann, Bjørn, 2020. "Biases distorting priority setting," Health Policy, Elsevier, vol. 124(1), pages 52-60.
    20. Chatterjee, Sidharta, 2022. "Decision Choice under Pareto Optimal Criteria," MPRA Paper 114254, University Library of Munich, Germany.
    21. Bastian Schulz, 2023. "Behavioral Finance and how its Behavioral Biases Affect German Investors," ACTA VSFS, University of Finance and Administration, vol. 17(1), pages 39-59.
    22. Chatterjee, Sidharta, 2022. "Choice That’s Rational," MPRA Paper 113880, University Library of Munich, Germany.
    23. Wood, Matthew S. & Long, Anna & Artz, Kendall, 2020. "Angel investor network pitch meetings: The pull and push of peer opinion," Business Horizons, Elsevier, vol. 63(4), pages 507-518.
    24. Uparna, Jayaram & Bingham, Chris, 2022. "Breaking “Bad”: Negativity’s benefit for entrepreneurial funding," Journal of Business Research, Elsevier, vol. 139(C), pages 1353-1365.
    25. Ghesla, Claus & Sonntag, Axel, 2019. "Framed Payslips and People's Reactions to Labor Tax Changes," MPRA Paper 97731, University Library of Munich, Germany.

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