"A frame
in social theory consists of a schema
of interpretation—that
is, a collection of anecdotes and stereotypes—that
individuals rely on to understand and respond to events.[1][page needed]
In simpler terms, a person has, through his lifetime, built a series of
mental emotional filters. They use these filters to make sense of the
world. The choices they then make are influenced by their frame
or emotional filters.
In psychology, framing
is influenced by the background of a context choice and the way in
which the question is worded."
Your perspective matters on how you perceive just about anything
Too much already! Stop. Just give me a simple idea:
Why heuristics are used.
From Shookrun:
" When
overwhelmed with facts, we select a small part of them and usually
reach a different conclusion from what the entire data set would
suggest. Researchers have found that people react to this avalanche of
data by adopting shortcuts or rules of thumb rather than formally
calculating the actual odds of a given outcome. Known to psychologists
as judgmental heuristics in technical jargon, these shortcuts are
learning and simplifying strategies we use for managing large amounts
of information. Backed by the experience of a lifetime, most of these
judgmental shortcuts work exceptionally well, and allow us to cope with
data that would otherwise overwhelm us. We also use selective processes
in dealing with probabilities: in many of our decisions and judgments,
we tend to be intuitive statisticians. We apply mental shortcuts that
work well most of the time. We think our odds of survival are better
when driving at 55 miles an hour that at 90 miles an hour, although few
of us have ever bothered to check the actual numbers."
Marketing:
How it impacts Finance Framing
Anchoring--not
this type, nor this
Examples: the number 20.
What
is rational?
Helping others?
Charities?
Big! From
2005: "Generosity is a long-standing American tradition, one
that continues to
grow. The Giving USA Foundation estimates that Americans gave $248.5
billion to charity last year, a threefold increase in
inflation-adjusted terms since 1964. To put the size of the donations
in perspective, Americans gave to charity last year an amount roughly
equal to the national incomes of Norway or Indonesia.1 The most
important source of giving is, not surprisingly, contributions from
private individuals, which represent more than 75 percent of the total.
The second most important source of contributions is foundations, and
in third place, bequests."
"Giving
is not about a calculation of what you are buying,” Karlan
said.
“It is about participating in a fight.” It is about
you as much as it
about the effect of your gift. As much as fund-raisers say that they
understand these mixed motivations, charities often continue to behave
as if donors were automatons. Thus the existence of big matching gifts."
Pay or pray? Gym Memberships: (still from New
Yorker)
"impure
altruism. It fits nicely with the recent explosion of academic
research on the anomalies and irrationalities of life. The field is
known as behavioral economics. It has shown, for example, that many
people buy monthly memberships to health clubs even when paying individually
for each visit would be much cheaper. Apparently, people imagine that
the membership will inspire them to work out far more often than it
really does. Behavioral economists don’t question that people
generally
want to do what’s best for themselves — and
probably what’s best for
their favorite cause, as well. But the world is a complicated place,
full of psychological nuances that trip them up."
Gambling
is fun: "monkeys chances to choose to look at either
of two
target lights on a screen. Looking at the "safe" target light yielded
the same fruit juice reward each time. However, looking at the "risky"
target light might yield a larger or smaller juice reward. The average
juice reward delivered by looking at either target was the same.
To their surprise, the monkeys
overwhelmingly preferred to gamble
by looking at the risky target. This preference held, regardless of
whether the scientists made the risky target reward more variable,
or whether the monkeys had received more or less fruit juice during the
course of the day.
This result is another knock at the foundations of economic theories
that assume perfect rational utility maximization by market actors."
"It seemed very, very
similar to the experience of people who are
compulsive gamblers," Platt points out. "While it's always dangerous to
anthropomorphize, it seemed as if these monkeys got a high out of
getting a big reward that obliterated any memory of all the losses that
they would experience following that big reward."
Inside look
The researchers then
wired electrodes into a part of the monkeys'
brains that, in humans and animals, is known to process information on
rewards."
Papers from the FMA that had a tie to behavioral finance
"Altruistic behaviour is common throughout the animal kingdom,
particularly in species with complex social structures. For example,
vampire bats regularly regurgitate blood and donate it to other members
of their group who have failed to feed that night, ensuring they do not
starve. In numerous bird species, a breeding pair receives help in
raising its young from other ‘helper’ birds, who protect
the nest from predators and help to feed the fledglings. Vervet monkeys
give alarm calls to warn fellow monkeys of the presence of predators,
even though in doing so they attract attention to themselves,
increasing their personal chance of being attacked. In social insect
colonies (ants, wasps, bees and termites), sterile workers devote their
whole lives to caring for the queen, constructing and protecting the
nest, foraging for food, and tending the larvae. Such behaviour is
maximally altruistic: sterile workers obviously do not leave any
offspring of their own — so have personal fitness of zero — but their
actions greatly assist the reproductive efforts of the queen.
From a Darwinian viewpoint, the existence of altruism in nature is
at first sight puzzling, as Darwin himself realized. Natural selection
leads us to expect animals to behave in ways that increase their
own chances of survival and reproduction, not those of others.
But by behaving altruistically an animal reduces its own fitness, so
should be at a selective disadvantage vis-à-vis one which
behaves selfishly. To see this, imagine that some members of a group of
Vervet monkeys give alarm calls when they see predators, but others do
not. Other things being equal, the latter will have an advantage. By
selfishly refusing to give an alarm call, a monkey can reduce the
chance that it will itself be attacked, while at the same time
benefiting from the alarm calls of others. So we should expect natural
selection to favour those monkeys that do not give alarm calls over
those that do. But this raises an immediate puzzle. How did the
alarm-calling behaviour evolve in the first place, and why has it not
been eliminated by natural selection? How can the existence of altruism
be reconciled with basic Darwinian principles?"
Class will begin with Joel Bennington giving a presentation
Then will discuss some of the papers from the FMA conference I attended last week:
It's in your genes? Kuhnen and Chiao (paper)
"Individuals vary in their willingness to take financial risks. Here we
show that variants of two genes that regulate dopamine and serotonin
neurotransmission and have been previously linked to emotional
behavior, anxiety and addiction (5-HTTLPR and DRD4) are significant
determinants of risk taking in investment decisions."
*another look at genes and risk (video)
* Mice and genes (video--older)
* Stress and decision making (video)
Professor Shlomo Benartzi is a leading authority on behavioural finance with
special interests in retirement planning, investor behaviour and
behavioural wealth management. He is currently co-chair of the
Behavioural Decision-Making Group at UCLA Anderson, as well as a
co-founder of the Behavioral Finance Forum. Benartzi's most significant
research contribution is the development of Save More Tomorrow™
(SMarT), a behavioral prescription designed to help employees increase
their savings rates gradually over time. If you only watch one video today, make it this!
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