Suitable for Framing: A Sampling of Cognitive and
ANCHORING—The tendency to rely too heavily on a
(possibly arbitrary) reference point when estimating a quantity or making a decision. For example,
people’s estimates of a little-known date in history
are affected if they are first told to add 200 to the
last three digits of their phone numbers.
FRAMING—People’s decisions and actions are influenced by the way relevant information is presented
AVAILABILITY HEURISTIC—One’s judgment of the
probability of an event is influenced by how readily
an example comes to mind. Likely influential in people’s assessment of the probabilities of such risks as
hurricanes, earthquakes, and terrorist attacks.
LOSS AVERSION—The pleasure (utility) of gaining an
item is less than the pain (disutility) of giving it up.
Related to the endowment effect.
ENDOWMENT EFFECT—People often demand more
to part with an object than they would be willing
to pay to acquire it. This may partially explain the
stalled real estate market.
many people believe (incorrectly) that more people die from
homicide. The availability heuristic implies that people’s risk
judgments can be manipulated in much the same way as their
purchasing behavior. This has important implications for insurance-buying behavior. For example, the demand for earthquake
insurance rises sharply immediately after an earthquake and
then gradually diminishes as memories of the disaster recede.
Similarly, psychological experiments have shown that people’s
risk perception and demand for flood insurance can be experimentally manipulated by showing subjects photographs of
flooded houses. Thaler and Sunstein report that people with
acquaintances who have suffered flooding are more likely to
buy flood insurance of their own, regardless of the flood risk
that they actually face.
In short, the availability heuristic affects people’s risk perception, which in turn affects their propensity to buy various
types of insurance. This even can lead to logical inconsisten-
STATUS QUO BIAS—Named by William Samuelson and
Richard Zeckhauser, it is the tendency to stick with
one’s current situation. For example, students tend
to sit at the same desks every day. It is associated
with one of the greatest marketing failures in history. In blind taste tests, people preferred New Coke to
the original classic Coca-Cola. Yet when confronted
with the choice between new and old versions in
the stores, people continued to buy old Coke.
HALO EFFECT—When a person is considered talented
or effective in one area, others tend to attribute
comparable talents to him or her in other, unrelated
OPTIMISM BIAS (aka the Lake Wobegon Effect)—The
tendency to be overly optimistic about one’s abilities and the outcomes of one’s own actions.
AVAILABILITY CASCADES—A chain reaction process by which a novel idea, or “meme,” gains currency in a social network or society. An example
is Hurricane Katrina sparking a cascading concern
about climate change. (Note that questioning the
evidential significance of Katrina does not suggest
that climate change is not a real threat.)
cies in people’s behavior. A simple illustration of the availability
heuristic is that people tend to believe that words ending in
“ing” are more common than words having “n” as their second-to-last letter. Of course this is illogical, but the belief arises because words ending in “ing” more readily come to mind. They
are more cognitively available than words whose penultimate
letter is “n.” Analogously, a 1993 study by a group of Wharton
professors reported that participants of a study were willing
to pay a higher premium for a $100,000 terrorism-insurance
policy than for a policy that paid the same amount for death
owing to any reason (including terrorism).
You’ve Been Framed
Phenomena such as anchoring, loss aversion, the endowment
effect, and the availability heuristic are only the beginning of a
long list of cognitive and behavioral biases documented by Kahneman and Tversky and their followers (see Page 32 for further