Framing a decision shifts the reference point and thereby changes risk preference

Evidence

Expected utility theory and prospect theory yield different predictions. The classical theory predicts risk aversion independent of the reference point, whereas prospect theory predicts risk aversion in the domain of gains and risk seeking in the domain of losses (except for small probabilities). Furthermore, prospect theory implies that shifts in the reference point induced by the framing of the problem will have predictable effects on people’s risk preferences. — John T. Jost and Jim Sidanius, Political Psychology, 2415

Categorization

• XREF: Framing effects here will be tested against the political scenarios that follow in this chapter — relevant to how issue frames shift voter risk appetite. — connects to: Risk attitude determines how an investment’s value differs from its expected payoff — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 534; Traders’ risk behavior hinges on anticipated bonus reference points — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 1200; Prospect theory shows risk attitudes shift with gain or loss framing — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 1199 (+1 more)