Risky choice framing

Two ways of describing the exact same outcome can lead to two different decisions. The workbook's own illustration is a choice framed as a risk of losing 10 out of 100 lives versus the opportunity to save 90 out of 100 lives.

Both sentences describe the same 90% survival rate. Yet people tend to prefer the second, more positive framing. This is risky choice framing, one of the workbook's two named types of framing bias.

Risky choice framing is framing applied to a choice between prospects — a risky option against a safer or differently described one. This is different from attribute framing, the workbook's other named type, which frames a single fixed attribute, such as beef described as 95% lean versus 5% fat, with no choice between prospects involved.

The mechanism sits inside Prospect Theory: how a choice is framed, as a gain or as a loss, changes how people weigh it, even when the arithmetic underneath is unchanged. The workbook introduces framing immediately before Prospect Theory itself, since framing is the first of Prospect Theory's own 2 decision phases.

Illustrative application to investing. An adviser can describe the same fund two ways: "this fund has lost money in 3 of the last 10 years," or "this fund has made money in 7 of the last 10 years." Both statements describe the identical track record.

Risky choice framing predicts a client is more likely to invest after hearing the second, gain-framed version, even though nothing about the fund's actual risk or performance has changed. An adviser aware of this bias presents both framings together, so the client's decision reflects the fund itself, not the wording used to describe it.

Chapter 16 (Basics of Behavioural Finance), section 16.3, introduces framing bias and names risky choice framing and attribute framing as its 2 identified types, using the "10 of 100 lives" example, immediately before the chapter turns to Prospect Theory. Expect a question giving a worded pair like the lives example and asking which type of framing it illustrates.

• The outcome is identical in both framings. If the actual facts differ between the two versions, it is not this bias.
• Risky choice framing frames a choice between prospects; attribute framing frames one fixed attribute with no choice involved. These are the workbook's 2 distinct types — do not merge them.
• People systematically favour the positively framed option, in both types of framing, even though a rational decision-maker would treat mathematically equivalent statements the same way.