Framing Effect

Framing Effect

Framing effect, in general, is the tendency of the people’s decisions to get affected by the way in which the choices are framed. The minds of individuals react differently to the information based on the way it is presented. The perception changes as a function of some variation in framing.

The framing effect has significant impact on investment decisions. The investment options are perceived differently by the investors based on whether is option presents more gains or more losses. The ultimate outcome of two choices may be the same, but the decision will depend upon which option is framed to present more positive outcome.

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