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Economics and Psychology The Framing of Decisions

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  • Daniele SCHILIRO

    (Department of Economics University of Messina Italy)

Abstract

In the Theory of Rational Decision Making the psychological aspects are set aside This contribution seeks to point out the relevance of psychology into eco nomic decisions The essay treats the framing of decisions which is a pillar of Kahneman s behavioral theory Framing must be considered a special case of the more general phenomenon of dependency from the representation The best known risky choice framing problem i e the Asian Disease Problem is shown where an essen tial aspect of rationality invariance is violated In addition the contribution ex plains Kahneman and Tversky s Prospect Theory and illustrates their value function Finally it discusses the reversals of preference in framing and framing of contingen cies The framing manipulation is viewed as a public tool for influencing the decision maker s private framing of the problem in terms of gains or losses which determines the decision maker s evaluation of the options In conclusion the psychology of choice is relevant both for the descriptive question of how decisions are made and for the nor mative question of how decisions ought to be made

Suggested Citation

  • Daniele SCHILIRO, 2016. "Economics and Psychology The Framing of Decisions," Journal of Mathematical Economics and Finance, ASERS Publishing, vol. 2(2), pages 77-88.
    • Handle: RePEc:srs:jmef00:v:2:y:2016:i:2:p:77-88
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    References listed on IDEAS

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    1. Daniele Schilirò, 2012. "Bounded Rationality And Perfect Rationality: Psychology Into Economics," Theoretical and Practical Research in the Economic Fields, ASERS Publishing, vol. 3(2), pages 99-108.
    2. Matthew Rabin, 1998. "Psychology and Economics," Journal of Economic Literature, American Economic Association, vol. 36(1), pages 11-46, March.
    3. Daniel Kahneman & Amos Tversky, 2013. "Prospect Theory: An Analysis of Decision Under Risk," World Scientific Book Chapters, in: Leonard C MacLean & William T Ziemba (ed.), HANDBOOK OF THE FUNDAMENTALS OF FINANCIAL DECISION MAKING Part I, chapter 6, pages 99-127, World Scientific Publishing Co. Pte. Ltd..
    4. Arrow, Kenneth J, 1982. "Risk Perception in Psychology and Economics," Economic Inquiry, Western Economic Association International, vol. 20(1), pages 1-9, January.
    5. Milton Friedman & L. J. Savage, 1952. "The Expected-Utility Hypothesis and the Measurability of Utility," Journal of Political Economy, University of Chicago Press, vol. 60(6), pages 463-463.
    6. Milton Friedman & L. J. Savage, 1948. "The Utility Analysis of Choices Involving Risk," Journal of Political Economy, University of Chicago Press, vol. 56(4), pages 279-279.
    7. Kahneman, Daniel, 2002. "Maps of Bounded Rationality," Nobel Prize in Economics documents 2002-4, Nobel Prize Committee.
    8. Tversky, Amos & Kahneman, Daniel, 1986. "Rational Choice and the Framing of Decisions," The Journal of Business, University of Chicago Press, vol. 59(4), pages 251-278, October.
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    Cited by:

    1. Schilirò, Daniele, 2024. "Finanza sostenibile e sistema di finanza pubblica sostenibile [Sustainable finance and sustainable public finance system]," MPRA Paper 120216, University Library of Munich, Germany.
    2. Schilirò, Daniele, 2017. "Economics versus psychology.Risk, uncertainty and the expected utility theory," MPRA Paper 83366, University Library of Munich, Germany.

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    More about this item

    JEL classification:

    • D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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