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The Influence of Framing on Willingness to Pay - gsb stanford

The Influence of Framing on Willingness to Pay - gsb stanford 2025

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The document explores the 'uncertainty effect' (UE), where individuals value a risky prospect less than its worst possible outcome. It argues that this phenomenon is influenced by how prospects are framed, specifically contrasting terms like 'lottery ticket' with 'gift certificate'. Through a series of experiments, the authors demonstrate that framing significantly affects willingness to pay (WTP) but not willingness to accept (WTA). They conclude that different frames evoke varying reference prices, leading to lower WTP under certain frames without altering subjective valuations. The findings challenge traditional views on risk aversion and highlight the importance of framing in decision-making.

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What is the framing effect in prospect theory?

To generate predictions consistent with the framing effect, prospect theory suggests that individuals frame decisions relative to a reference point, so that the marginal utility decreases as the decision outcome deviates from this reference point. (Kahneman Tversky, 1979; Tversky Kahneman, 1991, 1992).

What is the effect of framing on decision making?

The framing effect occurs when people react differently to something depending on whether it is presented as positive or negative. In other words, our decision is influenced by how the information is presented rather than what is being said.

What is the framing effect in shopping?

Its likely that you may have chosen to purchase one service or product over another that could be the same, or even better, simply because of the way it is presented to you. These types of decisions are made due to what is known as the framing effect. They are more frequent than you might think.

What is the framing effect?

The framing effect is a type of cognitive bias or error in thinking. Framing refers to whether an option is presented as a loss (negative) or a gain (positive). People are generally biased toward picking an option they view as a gain over one they view as a loss, even if both options lead to the same result.

What is framing in consumer behaviour?

However, in its relation to consumer behavior, framing can be defined as a persons reaction to a specific choice due to the way that it is presented. In this lesson were going to take a look at an example of framing and then address how framing effects consumer behavior.

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What is the framing effect in gambling?

The framing effect is when people make decisions based on whether their choices are presented positively (as a gain) or negatively (as a loss).

What is the framing effect in consumer behavior?

The framing effect is when our decisions are influenced by the way information is presented. Equivalent information can be more or less attractive depending on what features are highlighted.

What is framing and give an example?

Framing is the way the information is presented. The way the information is presented can affect the decision made by taking advantage of typical cognitive bias. An example of this is putting the most important information first or what the company wants the customer to choose.

The Influence of Framing on Willingness to Pay - gsb stanford 2025

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