Academic journal article Contemporary Management Research

Mean and Variability Effects in Decision Framing

Academic journal article Contemporary Management Research

Mean and Variability Effects in Decision Framing

Article excerpt

INTRODUCTION

Consumers can select products by choosing or rejecting alternatives. Choosing is an act of acquisition, seeking a product one wants (e.g. I want that phone). In contrast, rejection is an act of forfeiture, dismissing a product one does not want (e.g. I don't want that other phone) (Dhar & Wertenbroch, 2000). These two types of decisions are commonly seen in real markets, yet our understanding of the impact of framing on the outcomes of decisions remains incomplete (Hutchinson, Kamakura & Lynch, 2000; Laran & Wilcox, 2011; Takemura, 2014).

Decision framing can lead to decision outcomes that do not reflect the same underlying product preferences (Dhar & Gorlin, 2013; Kwong & Wong, 2006; Takemura, 2014). For example, if a person chose Phone A over Phone B when asked to choose a phone, he or she will not necessarily refuse the other phone, Phone B, when asked to reject the phone he or she does not want; even when presented with the same two phones. These changes in expected outcome due to framing are often referred to as preference reversals. Much of the original evidence for the effects of decision framing on the occurrence of reversals arose from observations that preferences are constructed during a decision rather than stored permanently in a person's memory (Bettman, Luce & Payne, 1998; Tversky, Sattath & Slovic, 1988). As a consequence, the framing of a question used to elicit people's preferences can influence the preferences that are constructed (Payne, 1982; Tversky et al., 1988). The mechanisms underlying this framing effect, and the impact of framing on decisions, continue to be explored (Dhar & Gorlin, 2013).

Much of the framing literature does not acknowledge that preferences (either constructed or stored) can be described as having two components. Random utility theory postulates that preferences can have a systematic component and a random component (Hess & Daly, 2014). The systematic component can be described as the mean preferences held by a group of people, and the random component as the variability in that group's preferences (Hess & Daly, 2014). Consideration has been given to the systematic or mean component, but only limited attention has been paid to the fact that the random (or variability) component may also play a role in framing effects. Furthermore, researchers have only speculated about the nature of that role without formally testing it (Hutchinson et al., 2000). The objective of this research is thus to examine how changing the framing of a decision from a choice to a rejection influences the mean preferences held by people and variability in those preferences.

DECISION FRAMING AND PREFERENCE DIFFERENCES

It has been demonstrated in the literature that framing a decision task as a choice or a rejection can elicit decision outcomes that do not reflect the same preferences (Chernev, 2009; Dhar & Wertenbroch, 2000; Irwin & Naylor, 2009; Laran & Wilcox, 2011; Meloy & Russo, 2004; Shafir, 1993; Takemura, 2014). Preferences are generally formed in response to the need to make a decision, rather than stored in memory for when a decision arises (Bettman et al., 1998). The preferences formed can thus be influenced by the framing used to elicit those preferences. This is especially true when there are no obvious dominant alternatives and when little prior experience has allowed the formation of strong baseline preferences (Bettman et al., 1998; Shafir, 1993).

Research has focused on observing how changes in framing affect people's average preferences (Hutchinson et al., 2000). The impact of framing a decision as a choice and rejection has only been considered in this way (Hutchinson et al., 2000). Our research shows that they should be considered in two ways: changes in average preferences, and changes in preference variability.

THE SYSTEMATIC AND RANDOM COMPONENT OF PREFERENCE

The nature of preferences and how they are actioned by consumers has received different treatments in the literature (Gilboa, 2009; Lichtenstein & Slovic, 2006). …

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