The Framing Effect and Hindsight Bias
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The Framing Effect and Hindsight Bias
The purpose of the present study is to adequately and examine two biases. Firstly, is the framing effect by use of one set of Tversky and Kahneman’s (1981) framing questions and another set on hindsight bias by use of Slovic’s and Fischhoff’s (1977) foresight-hindsight questions. A determination for the relationship between these two biases is needed and thus be able to find out if the people are susceptible to the framing effect are also susceptible to the hindsight bias. In line with Tversky and Kahnerman, regarding the framing effect, it is predicted that the majority of the participants will be influenced by the different frames (i.e. positive vs negative) presented to them. Specifically, we predict that positive frames will prevent people from risking what they were certain to gain; while negative frames will lead to people risk-taking what they seem to perceive as a sure loss. In addition, it is also predicted that scores concerning people’s predictions of an approach outcome will be higher in the hindsight condition than in the foresight condition.
Conclusively both methods may seem similar but are not at all the same. Not only does their difference in opinion and meaning show this but also to do their effects on other human beings including experts, educators, and even analysts. Only by reviewing these two methods can we properly come up with means of analyzing how to deter ourselves against them and also find means of helping others from the influences of such bias nesses. An Example looks into these forms of bias will also give us a brief insight on how to better understand them and implement necessary measures to ensure that they are unproductive at best or even unusable in some instances to influence decisions or make improper unnecessary judgments in anything. If a reasonable counter means on bias nesses can be established, then a great many people might benefit.
Introduction
Decision-making is undoubtedly an outcome of every human being. Some individuals make good outcomes on their decisions while other people’s decisions are unpredictable since they may be affected by uncertain factors. The quality of decision-making varies among individuals of different backgrounds and life choices. An important characteristic of decision-making is that, in situations of uncertainty, individuals predict the likelihood of a particular outcome (Kahneman et al., 1973)
Factors for proper decision-making include having prior knowledge, information about the subject or object, and the expected accuracy of the prediction. Specifically, decision-making under uncertainty involves information about what we already know, information about the specific person, object, and how confident one is about their prediction. Altogether, these factors impact how one makes decisions on a daily.
Past researches have shown that when individuals are making predictions about uncertain outcomes, there is greater emphasis placed on previous knowledge (Johnson, 1987). That is, when an individual is uncertain about the outcome of a decision, they are more likely to rely on previous information and heuristics. For example, if an individual is uncertain about whether their team is going to win or lose in the upcoming game, the individual is more likely to rely on previous performance to make their predictions (Kahneman et al., 1973). Although previous data may give guidance and insight this sort of biasness will end up being more than just harmful to the individual. Past data is in no way a prediction of future trends but how we choose to see such data will greatly depend on the individual presented with such information and data. Past research and data may also be fundamentally flawed and unusable so they are in no way at all meant to be a precursor to anything about the future.
The framing effect
This is often considered in how decisions are influenced by the way information is presented. How information is highlighted can be more or less attractive depending on what kind of features were used. Focusing on the way information is represented and not the information itself is how a decision of the framing effect occurs. This in turn makes them more attractive than options or information that are much better thus casting them in a less favorable light. A good enough example of this is an unwitting individual who unwisely chooses an absurd high-risk investment portfolio because their broker emphasized the great potential upside instead of the common downside.
By looking at the rules that make up intuitive judgments and an otherwise intuitive prediction Tversky and Kahnerman thus developed a means of using these rules to come with a normative principle of statistical prediction. Looking at the two classes of prediction we draw a kind of parallel into what the researchers were trying to show. Taking into consideration the categorical prediction we see a kind of nominal form e.g. elections and their winners. While a numerical prediction gives information in a numerical form e.g. stock indices for future forecasting and trends.
This type of system has considerable influence on public opinion, not to mention public affairs and other events that may in one way or another draw attention from the public if they are interpreted very differently to give an idea from a specific frame or point of view. Negative framing can even in certain conditions insure that even policies or ideas intended to help people do not in any way succeed to do so. A similar instance may occur in which policies and behaviors that have no value or purpose of helping the people may be popularized and thus greatly emphasized to give them a positive view among people. Climate change is a good enough contentious issue that has been scientifically conventionalized to be a public opinion rather than a scientific fact.
Since most choices are influenced by options, the frame of such a format is heavily reliant on emphasis, wordings, and reference points. Common framing gets their attention to either the positive gain or the negative loss associated with a given option. Susceptibility to this sort of framing is a given because of our need to tend to avoid loss.
A prospect theory has been introduced in that a particular loss is shown to be of significance and thus more worthy of an avoiding than an equivalent gain. A sure gain is most likely preferred to a probable one and a probable loss is preferred to a sure loss. To ensure we do not get straight losses we thus look for options and information with certain gains. The particular framing of something all but guarantees us that there is a certainty that something will bring either gain or loss. Hence we find it attractive when the positive features of any option are highlighted instead of negative ones.
Since our minds have great difficulty in processing certain information especially if the message is something that is complex and thus takes time and a lot of energy our mind irrevocably uses shortcuts also termed as heuristics. A heuristic is our brain’s tendency to use information that comes to mind more quickly and easily when making decisions about the future. This time of instance is even more prevalent in older individuals due to their limited cognitive resources and hence may favor information presented in a way that is easily accessible to them. Thus our need to want information framed easily and logically create an easy enough way in which the framing is quite useful and efficient to use. A need to want information framed in an elicit and quick manner often is designed to elicit an emotional response. Further research shows us that framing is always designed to elicit emotional appeals and thus in hindsight can be designed to have specific emotional reactions. A good enough example to show this scenario is in how we elect key candidates to positions of power, Individuals who give an emotional inspirational speech are more likely to get elected than other individuals who are of the same platform but rather are represented in a dreary report.
The framing is not at all either good or evil but it can greatly affect information to be either positive or negative. Its ability to impair judgment by further limiting our ability on decision making is an element that cannot be ignored since at times it greatly sheds a positive light on poor information or lesser options. This in turn leads to overvaluing how something is said which is usually of more importance at times hence leading us to choose worse options that are more effectively framed regardless of how bad over better options or information that is framed badly. This at times is greatly seen and held to be true in the smaller decisions we make as consumers and citizens and also more significant decisions that we encounter and have to make in our own personal and professional life.
There is a need to learn what counts as effective bias and framing bias to properly understand what better options look like and what badly framed ones look like. Such an instance is mostly held in the instance where consumers or citizens have to deal with even more and better decisions we have to deal with in our personal and professional lives.
Although this biasness seems a bit unstoppable it can in actuality be harnessed for an advantage to us. By understanding how framing works we can easily find ways in how we frame our ideas and thoughts and thus be more effective in our day-to-day life tasks by framing our thoughts and ideas in a way that is easily understood by a large group of people. Even more effective training may allow us to leverage our point of view.
Hindsight bias
This phenomenon happens in instances where a person looks back at an event and believes they could have predicted the outcome. It is particularly noticeable in people who believe that they have a much better judgment than others. The key point here is that once we know the outcome it is much easier to construct any at all plausible explanation. Thus, this ensures we become more or less critical of the future when it comes to matters about our decisions which will, in turn, lead to poor decision-making in the future. A key example to illustrate here is when investors are often a lot of time-pressured on making perfect buying and selling stocks to sufficiently maximize the returns. This oftentimes leads to a kind of regret that when a loss is encoded and hence the thought that they saw it coming all along. This in turn leads them to the possibility that this was an inevitable outcome that they might have anticipated. Whatever likely option pans out convinces the investor that it was an option that they likely saw coming. This in turn allows investors to unknowingly make poor decisions going onwards with their life thus preventing any means of hindsight that may involve being able to make decisions beforehand such as keeping a kind of documented journal to allow investors to communicate later.
By use of three experiments, Slovic and Fischhoff were able to show the hindsight effects that occur when scientific results are further evaluated and thus a form of predictability. By reporting the outcomes of historical events the increased likelihood of that outcome occurring then becomes exponentially real. The ‘we knew it all along’ mentality that subjects adhere to tends to deepen them and they are believed even further. A reduction in the effectiveness of the hindsight research was properly noted when people were forced to consider how the research would otherwise turn out.
Hindsight bias is more involved than anything else since it revolves around revising the probability of an outcome after the fact. A complete over-exaggeration of knowing about a particular outcome is inevitable since after the inevitable outcomes happen individuals tend to over exaggerate. Such biases can be found in almost every single situation with the most notable being decision making and weather predictions. Since this type of bias is rooted in anchoring and overconfidence after an event at times occurs it is thus our use of knowledge after the outcome that is at times used for prior judgments of the outcome. Science also plays a fundamental aspect here whereby hindsight bias might not be solely tied to the ineffective processing of information but rather rooted in a kind of adaptive learning to help us survive in an evolutionary process. This fact is, even more, supported taking into consideration that our mind can only hold a limited amount of information, and thus as a means of updating previous knowledge the brain helps prevent memory loss and overload. Our ability to use and understand hindsight bias keenly shows just how comforting we found it to see that the world is predictable and thus in a way orderly. Hence in a lot of instances, we seek to see unpredictable events as predictable and thus have a positive view of ourselves and in essence use sense-making to create a story or narrative that will in all likelihood show that we knew a certain outcome.
There are various key examples to look into when it comes to hindsight bias such as: –
Financial bubbles are always the greatest examples of hindsight biases after their inevitable burst. The dot bubble in the late 1990s and the great recession of 2008 and an exceptional number of analysts and pundits demonstrated clearly and broadly how trivial events at times were harbingers of future financial trouble. Although they were right in one way or another other concurrent events reinforced the assumption that the inevitable boom time would never end. If such analysts had taken into account that a financial bubble is not easy to predict then they might have understood that it would be also easy to stop if it could have been predicted.
Entrepreneurs also do not seem immune to hindsight bias since according to some economists who stated on information gathered about past previous data that most entrepreneurs of failed startups acknowledged that their companies would fail but upon being asked again after they fail their only a majority acknowledged that they believed their start-up would be successful.
Businesses are not immune to hindsight biases since professionals and decision-makers assume because a strategy worked previously it will in fact in all likelihood keep on working. However, this narrative is completely a false condition since it does not take into account the ever-changing conditions of current times and the notion that since something worked well in the past it might as well work well in the present.
To avoid hindsight bias individuals such as investors should always be careful when evaluating their abilities to predict how current or future events will unfold and hence impact the future performance of securities and stocks. A journal might in some cases be necessary if a not amazing tool that easily helps keep a record of the various decision-making process and thus allow one to understand how key specific decisions were made, implemented, and thus finally concluded. Such a document would better help an individual to accurately reflect on a situation and thus see if they find themselves biased in any way.
Intrinsic evaluation is also another more effective approach as it helps investors make decisions on data-driven factors and not in any way personal ones. They are in many instances referring to the perception of a stock’s value based on all aspects of any business and hence may or may not coincide with the current market value.
Relationship between the framing effect and hindsight bias
Taking an example of decision making we can easily see how these two outcomes come into play. Taking note that we make cognitive decisions on a day to basis based on the type of possible outcomes we are presented we see that at some we are aware of the cognitive biases we impose to achieve such mundane tasks. Such tasks may often involve reasoning and emotion and thus in one way or another have instances that involve uncertainty and thus a rational or irrational way of looking at things. Cognitive biases imply a means of subconscious error as a result of thought misinterpretation of knowledge and its eventual impact on accuracy, rationality to give a proper response, and judgment.
They make it hard for people to exchange accurate information and or derive truths and hence end up distorting our critical reading which ends up leading to acting on misconception or misinformation that can be damaging to others. In the end, it causes us to avoid information that may be unwelcome or uncomfortable rather than the eventual investigation that could lead us to a more accurate outcome.
To fully understand how such bias affects society as a whole we need to further implement measures to see where how exactly they have been used over time. Effectively doing this is the only thing that helps us see how we may end up avoiding such bias or even better yet how we may use them ourselves to effectively send out key messages and pass well-meaning positive reforms to individuals who will greatly benefit from them. Although more data and information on bias is required it is easy to see just how the little data that there is effective and use to a small range of people to effectively enact meaningful change that is detrimental to helping everyone and thus ensuring everyone benefit.
Conclusion
By looking into the two forms of biasness’s we conclude that human beings have all sorts of ways to look at biasness as both a positive and negative influence. It seems that business is only effective to key individuals based on how well a message is targeted to them. Both framing and hindsight bias elicit an emotional response to be effective in either marketing or selling the key underlining message required.
Biasness may be positive or negative depending on who exactly is using it, A form of positive bias nesses is its implementation in sending out key messages that are used to help individuals make informed decisions and better choices with what they know. A case of negative biases is when it is used for specific gains that are most termed as either incentive for another individual to gain from another person’s loss. Manufacturing companies and major businesses have such incentives and thus are the biggest culprit when it comes to using this type of bias in a completely unproductive and useless way.
To adequately ensure that such biases are not used against well-intentioned people it is appropriate that as many people as possible understand how bias work and just how they can easily be able to recognize any form of bias to easily find ways to avoid them in their entirety if not use them to their advantage.
Reference
Henriksen, K., & Kaplan, H. (2003). Hindsight bias, outcome knowledge, and adaptive learning. BMJ Quality & Safety, 12(suppl 2), ii46-ii50.
Kahneman, D., & Tversky, A. (1973). On the psychology of prediction. Psychological review, 80(4), 237.
Knoll, M. A., & Arkes, H. R. (2017). The effects of expertise on the hindsight bias. Journal of Behavioral Decision Making, 30(2), 389-399.
Slovic, P., & Fischhoff, B. (1977). On the psychology of experimental surprises. Journal of Experimental Psychology: Human Perception and Performance, 3(4), 544.
