The behavioral psychologists Kahneman and Tversky conducted experiments to test

Question

The behavioral psychologists Kahneman and Tversky conducted experiments to test their prospect theory, which concerns aversion to losses. They discovered that how gambles are framed to the decision-maker can lead to quite different outcomes. 8 Which of the following is a correct summary of how framing affects decision-making? O When a decision is framed in terms of possible gains, individuals tend to be risk-averse. When the identical decision is framed in terms of possible losses, individuals tend to be risk-seeking. O When a decision is framed in terms of risk of financial losses, individuals tend to be risk-seeking. When a decision is framed in terms of risk of death, individuals tend to be risk-averse. O When a decision is framed in terms of small monetary amounts, e.g.. gaining $10 versus losing $10, individuals tend to be risk-seeking. When a decision is framed in terms of large monetary amounts, e.g., gaining $10,000 versus losing $10.000, individuals tend to be risk-averse 5 0 when a decision is framed in terms of possible gains, individuals tend to be risk-seeking, when the identical decision is framed in terms of possible losses, individuals tend to be risk-averse.

Explanation / Answer

Ans A

According to framing effect people tend to avoid risk when a positive frame is presented but seek risks when a negative frame is presented. for example if a discount is given for early payment of fees it will attract less number of student for payment whereas if the late penalty is emphasized, more students will be eager to deposit fees in time.

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