Chapter

Frame Dependence: The Second Theme

Hersh Shefrin

in Beyond Greed and Fear

Published in print October 2002 | ISBN: 9780195161212
Published online November 2003 | e-ISBN: 9780199832996 | DOI: http://dx.doi.org/10.1093/0195161211.003.0003

Series: Financial Management Association Survey and Synthesis Series

 Frame Dependence: The Second Theme

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A frame is a description. Frame dependence means that people make decisions that are influenced by the manner in which the information is presented. Frame dependence manifests itself in the way that people form attitudes towards gains and losses. Many people make one decision if a problem is framed in terms of losses, but behave differently if the same problem is framed in terms of gains. An important reason for this behavior is loss aversion. Hedonic editing is the practice of choosing frames that are attractive relative to other frames. People with self‐control problems often use hedonic editing to help them deal with those problems. There is evidence that some investors use dividends in this way. Money illusion, the failure to factor in inflation or deflation correctly, provides another illustration of a framing issue.

Keywords: dividends; frame; frame dependence; gains and losses; hedonic framing; loss aversion; mental accounting; money illusion; self‐control

Chapter.  4079 words. 

Subjects: Financial Markets

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