Framing Effects
The first step in making a decision is to frame the
It's also one of the most dangerous steps.
The way a problem is framed can profoundly
influence the choices you make.
A frame can establish the status quo (recall lecture
3.44) or introduce an anchor (recall lecture 1.101). It
can highlight investment costs or lead you toward
confirming evidence.
Monday, 13 April 2015
3:52 AM
Framing Effects
How a question is posed can be crucial, for instance.
Have you stopped beating your wife?
Framing Effects
This discussion closely follows that of Kahneman
(2011). Not all frames are equal, and some frames are
clearly better than alternative ways to describe (or
to think about) the same thing. Consider the
following pair of problems:
Framing Effects
A woman has bought two $80 tickets to the theatre.
When she arrives at the theatre, she opens her
wallet and discovers that the tickets are missing.
Will she buy two more tickets to see the play?
A woman goes to the theatre, intending to buy two
tickets that cost $80 each. She arrives at the
theatre, opens her wallet, and discovers to her
dismay that the $160 with which she was going to
make the purchase is missing. She could use her
credit card. Will she buy the tickets?
In each scenario, what would you do?
Framing Effects
Respondents who see only one version of this problem
reach different conclusions, depending on the frame.
Most believe that the woman in the first story will go
home without seeing the show if she has lost tickets,
and most believe that she will charge tickets for the
show if she has lost money.
Framing Effects
The explanation should already be familiar - this
problem involves mental accounting and the sunk-cost
fallacy. The different frames evoke different mental
accounts, and the significance of the loss depends on
the account to which it is posted. When tickets to a
particular show are lost, it is natural to post them to
the account associated with that play. The cost
appears to have doubled and may now be more than
the experience is worth. In contrast, a loss of cash is
charged to a “general revenue” account - the theatre
patron is slightly poorer than she had thought she
was, and the question she is likely to ask herself is
whether the small reduction in her disposable wealth
will change her decision about paying for tickets.
Most respondents thought it would not.
Framing Effects
The version in which cash was lost leads to more
reasonable decisions. It is a better frame because
the loss, even if tickets were lost, is “sunk,” and sunk
costs should be ignored. History is irrelevant and the
only issue that matters is the set of options the
theatre patron has now, and their likely
consequences. Whatever she lost, the relevant fact
is that she is less wealthy than she was before she
opened her wallet. If the person who lost tickets
were to ask for my advice, this is what I would say:
“Would you have bought tickets if you had lost the
equivalent amount of cash? If yes, go ahead and buy
new ones.” Broader frames and inclusive accounts
generally lead to more rational decisions.
Framing Effects
In the next example (Larrick and Soll 2008), two
alternative frames evoke different mathematical
intuitions, and one is much superior to the other. The
paper identified a case in which passive acceptance
of a misleading frame has substantial costs and
serious policy consequences. Most car buyers list
petrol consumption as one of the factors that
determine their choice; they know that high-mileage
cars have lower operating costs. But the frame that
has traditionally been used in the United States miles per gallon - provides very poor guidance to the
decisions of both individuals and policy makers.
Consider two car owners who seek to reduce their
Framing Effects
Adam switches from a gas-guzzler of 12 mpg to a
slightly less voracious guzzler that runs at 14 mpg.
The environmentally virtuous Beth switches from a
30 mpg car to one that runs at 40 mpg.
Suppose both drivers travel equal distances over a
year (say 10,000 miles). Who will save more fuel by
Framing Effects
You almost certainly share the widespread intuition that Beth's
action is more significant than Adam's: she reduced mpg by 10
miles rather than 2, and by a third (from 30 to 40) rather than a
sixth (from 12 to 14). If the two car owners both drive 10,000
miles, Adam will reduce his consumption from a scandalous 833
gallons to a still shocking 714 gallons, for a saving of 119 gallons.
Beth's use of fuel will drop from 333 gallons to 250, saving only
83 gallons. The mpg frame is wrong, and it should be replaced by
the gallons-per-mile frame (or litres-per-100 kilometres, which is
used in most other countries). As Larrick and Soll (2008) point
out, the misleading intuitions fostered by the mpg frame are likely
to mislead policy makers as well as car buyers.
Hyundai and Kia settle US mileage claims - FT - 3 Nov 2014
Groups hit with $300m penalties for overstating fuel economy.
The businesses will pay $100m, the largest civil penalty in the
history of the US Clean Air Act and will forfeit greenhouse gas
emission credits with an estimated value of more than $200m.
Framing Effects
A directive about organ donation in case of
accidental death is noted on an individual's driver
license in many countries. The formulation of that
directive is another case in which one frame is
clearly superior to the other. Few people would argue
that the decision of whether or not to donate one's
organs is unimportant, but there is strong evidence
that most people make their choice thoughtlessly.
The evidence comes from a comparison of the rate
of organ donation in European countries, which
reveals startling differences between neighbouring
and culturally similar countries.
Framing Effects
Johnson and Goldstein (2003) noted that the rate of
organ donation was close to 100% in Austria but only
12% in Germany, 86% in Sweden but only 4% in
Framing Effects
These enormous differences are a framing effect,
which is caused by the format of the critical
question. The high-donation countries have an opt out
form, where individuals who wish not to donate must
check an appropriate box. Unless they take this
simple action, they are considered willing donors. The
low-contribution countries have an opt-in form: you
must check a box to become a donor. That is all. The
best single predictor of check a box to become a
donor. That is all. The best single predictor of
whether or not people will donate their organs is the
designation of the default option that will be
adopted without having to check a box.
Framing Effects
People will check the box if they have already
decided what they wish to do. If they are
unprepared for the question, they have to make the
effort of thinking whether they want to check the
box. I imagine an organ donation form in which people
are required to solve a mathematical problem in the
box that corresponds to their decision. One of the
boxes contains the problem 2 + 2 = ? The problem in
the other box is 13 × 37 = ? The rate of donations
would surely be swayed.
Framing Effects
When the role of formulation is acknowledged, a
policy question arises: Which formulation should be
adopted? In this case, the answer is straight
forward. If you believe that a large supply of
donated organs is good for society, you will not be
neutral between a formulation that yields almost
100% donations and another formulation that elicits
donations from 4% of drivers.
Framing Effects Reference Point
People’s trading decisions are affected by reference
points, which act as performance benchmarks.
Suppose you are asked the question:
Primus owns 100 shares of an asset, originally bought
at 100. Secunda owns 100 shares of the same asset,
originally bought at 200. The price of the share was
160 yesterday and it is 150 today. Who is more
It is the initial price, which determines how the
stock is doing.
Framing Effects Reference Point
A consequence of this is the disposition effect: an
investor who needs cash and owns two stocks is much
more likely to sell the stock whose price has gone up;
see Odean (1998a).
Framing Effects - The
Disposition Effect
This discussion closely follows that of Kahneman
(2011). A mistake that afflicts individual investors
when they sell stocks from their portfolio:
Framing Effects - The
Disposition Effect
You need money to cover the costs of your
daughter’s wedding and will have to sell some stock.
You remember the price at which you bought each
stock and can identify it as a “winner,” currently
worth more than you paid for it, or as a loser. Among
the stocks you own, Blueberry Tiles is a winner; if
you sell it today you will have achieved a gain of
$5,000. You hold an equal investment in Tiffany
Motors, which is currently worth $5,000 less than
you paid for it. The value of both stocks has been
stable in recent weeks. Which are you more likely to
What would you do?
Framing Effects - The
Disposition Effect
A plausible way to formulate the choice is this: “I
could close the Blueberry Tiles account and score a
success for my record as an investor. Alternatively, I
could close the Tiffany Motors account and add a
failure to my record. Which would I rather do?” If
the problem is framed as a choice between giving
yourself pleasure and causing yourself pain, you will
certainly sell Blueberry Tiles and enjoy your
investment prowess. As might be expected, finance
research has documented a massive preference for
selling winners rather than losers — a bias that has
been given an opaque label: the disposition effect.
Framing Effects - The
Disposition Effect
The disposition effect is an instance of narrow
framing. The investor has set up an account for each
share that she bought, and she wants to close every
account as a gain. A rational agent would have a
comprehensive view of the portfolio and sell the
stock that is least likely to do well in the future,
without considering whether it is a winner or a loser.
Framing Effects Reference Point
Selling losers and buying winners is referred to as a
momentum investment strategy (Hong and Stein,
It is believed to outperform the contrarian
investment strategy, that is selling winners and
buying losers.
Yet, investors will be “disposed” to sell winners too
soon and hold losers too long. Shefrin and Statman
(1985) accordingly labeled this the disposition
Framing Effects Reference Point
Research shows the pervasiveness of framing
effects: two logically equivalent statements of a
problem lead decision-makers to choose different
Framing Effects Reference Point
Framing effects typically involve differing frames
whose logical equivalence is neither totally
transparent nor terribly obscure, and the ways in
which decisions are influenced is typically
predictable by the features emphasized by the
The most predictable influences of framing on choice
relate to loss aversion and diminishing sensitivity, as
outlined above. Because losses resonate with people
more than gains, a frame that highlights the losses
associated with a choice makes that choice less
Framing Effects Reference Point
Similarly, a frame that exploits diminishing
sensitivity by making losses appear small relative to
the scales involved makes that choice more
Kahneman and Tversky (1979) introduced framing by
means of the observation that a reference point may
shift in such a way that a gain appears to be a loss or
a loss appears to be a gain.
Framing Effects Reference Point
Verbal labels may make a reference point salient, for
instance, the content of meat products may be
framed either as P% fat-free (making 0% fat-free
the reference point) or (100-P)% fat (making 100%
fat the reference point). P% fat-free will then
appear to be a gain and be more positively evaluated
than (100-P)% fat which appears to be a loss.
Levin and Gaeth (1988) found that whether fat
content of meat was described as percentage fat or
percentage fat-free even affected the taste of the
Framing Effects Reference Point
Tversky and Kahneman (1986, p. S254-5) give the
following example of framing effects, taken from a
study of medical decisions by McNeil et al. (1982):
Framing Effects Reference Point
Respondents were given statistical information about
the outcomes of two treatments of lung cancer. The
same statistics were presented to some respondents
in terms of mortality rates and to others in terms of
survival rates. The respondents then indicated their
preferred treatment. The information was presented
exactly as follows.
Framing Effects Reference Point
Problem (Survival frame)
Surgery: Of 100 people having surgery 90 live
through the post-operative period, 68 are alive at
the end of the first year and 34 are alive at the end
of five years.
Radiation Therapy: Of 100 people having radiation
therapy all live through the treatment, 77 are alive
at the end of one year and 22 are alive at the end of
five years.
Please note down the key figures.
Framing Effects Reference Point
Problem (Mortality frame)
Surgery: Of 100 people having surgery 10 die during
surgery or the post-operative period, 32 die by the
end of the first year and 66 die by the end of five
Radiation Therapy: Of 100 people having radiation
therapy, none die during treatment, 23 die by the
end of one year and 78 die by the end of five years.
Please note down the key figures.
Framing Effects Reference Point
Surgery Radiation Surgery Radiation
After treatment
Year 1
Year 5
Framing Effects Reference Point
Surgery Radiation Surgery Radiation
After treatment
Year 1
Year 5
Framing Effects Reference Point
The inconsequential difference in formulation
produced a marked effect.
The overall percentage of respondents who favoured
radiation therapy rose from 18% in the survival
frame (n = 247) to 44% in the mortality frame
(n = 336).
The advantage of radiation therapy over surgery
evidently looms larger when stated as a reduction of
the risk of immediate death from 10% to 0% rather
than as an increase from 90% to 100% in the rate of
Framing Effects Reference Point
The framing effect was not smaller for experienced
physicians or for statistically sophisticated business
students than for a group of clinic patients.
This question is hypothetical, and real stakes might
change the level of care that subjects give to the
Controlled experiments of the issues above would be
Framing Effects Reference Point
But the fact that experienced physicians make the
same mistakes suggests that similar patterns might
play out in the real world.
Similar framing effects were found in choices over
lotteries with small monetary stakes.
More generally, it would be wrong to think that
framing effects only matter when stakes are small,
when the framing of the choices obscures the
appropriate choice in an exceedingly subtle way, or
when the decision context is hypothetical or noneconomic.
Framing Effects Reference Point
Tversky and Kahneman (1986, S251-278) cite some
important real-world examples of framing effects.
As an illustration they approached respondents in a
telephone interview who evaluated the fairness of
the action described in the following vignette, which
was presented in two versions that differed only in
the bracketed clauses.
Framing Effects Reference Point
A company is making a small profit. It is located in a
community experiencing a recession with substantial
unemployment [but no inflation]. The company
decides to [decrease wages and salaries 7%] this
Is this fair?
Framing Effects Reference Point
A company is making a small profit. It is located in a
community experiencing a recession with substantial
unemployment [and inflation of 12%]. The company
decides to [increase salaries only 5%] this year.
Is this fair?
Framing Effects Reference Point
A company is making a small profit. It is located in a
community experiencing a recession with substantial
unemployment [but no inflation]. The company
decides to [decrease wages and salaries 7%] this
A company is making a small profit. It is located in a
community experiencing a recession with substantial
unemployment [and inflation of 12%]. The company
decides to [increase salaries only 5%] this year.
Framing Effects Reference Point
Although the loss of real income is very similar in the
two versions, the proportion of respondents who
judged the action of the company "unfair" or "very
unfair" was 62% for a nominal reduction (first case)
but only 22% for a nominal increase (second case).
Framing Effects Compartmentalization
People often fail to take into account the joint
effect of their decisions. Suppose you are asked the
You face two concurrent decisions. Examine both
decisions and state the options you prefer for each
decision (note your choice for A and B).
Decision A: choose between a sure gain of 2,400 and
a 25% chance of a gain of 10,000.
Record your choices
Decision B: choose between a sure loss of 7,500 and
a 75% chance of a loss of 10,000.
Framing Effects Compartmentalization
In accord with loss aversion, most people tend to
choose the sure gain in A and the gamble in B. Now,
consider the following question:
Choose between a 25% chance to win 2,400 and a
75% chance to lose 7,600 versus a 25% chance to win
2,500 and a 75% chance to lose 7,500.
Record your choice
There is no doubt about the right choice: the second
option dominates the first one.
Framing Effects Compartmentalization
However, note that the pair chosen in the first
question amounts to the inferior option, while the
pair rejected is equivalent to the dominating choice.
As detailed in the following slides.
People find it easier to deal with decisions one at a
time and tend to forget the overall picture.
Framing Effects Compartmentalization
In case you missed the link, most people tend to
choose the sure gain in A and the gamble in B.
Decision A: sure gain of 2,400
Decision B: 75% chance of a loss of 10,000
(So 2,400 plus either 0 at 25% or -10,000 at 75%.
That is 2,400 at 25% or (2,400-10,000) at 75%.)
That is 25% chance to win 2,400 and a 75% chance
to lose 7,600 . The first combined option.
Framing Effects Compartmentalization
In case you missed the link, most people tend to
reject the gamble in A and the sure loss in B.
Decision A: 25% chance of a gain of 10,000
Decision B: sure loss of 7,500
(So -7,500 plus either 10,000 at 25% or 0 at 75%.
That is 2,500 at 25% or (0-7,500) at 75%.)
That is 25% chance to win 2,500 and a 75% chance
to lose 7,500. The second combined option.
Framing Effects Compartmentalization
A common effect is the use of a “mental accounting”
strategy by which people classify their savings (or
expenses) in different segments and deal with them
in different ways;
for instance, a windfall rise in income rarely finds its
way in the (mentally separated category of)
retirement savings or health insurance.
Framing Effects Compartmentalization
Mental accounting refers to how people categorize
and evaluate financial outcomes (Henderson and
Peterson, 1992). Shefrin and Thaler (1988) assume
that people categorize wealth in three mental
accounts: current income, current wealth, and future
income. It is furthermore assumed that the
propensity to consume is greatest from the current
income account and smallest from the future-income
Framing Effects
Framing refers to the way our decisions are affected
by the way information is presented. For instance,
framing can influence whether we see a glass as half
empty or half full. The same glass framed different
ways can be perceived differently depending on the
context. In the strip, Dogbert and his client describe
as "dumb" those shoppers who think something
labelled as "50 percent off" must be a bargain. Yet
the client considers himself a "genius" when he falls
victim to the same bias. Cartoon (Kramer 2014)
Framing shows up again in the strip when Dilbert's
boss frames Dilbert's lack of a salary raise relative to
the alternative of being attacked by bears, which
Dilbert finds compelling. Cartoon (Kramer 2014)
Framing Effects - Avoidance
Hammond et al., 2006
1. Don't automatically accept the initial frame,
whether it was formulated by you or by someone
else. Always try to reframe the problem in various
ways. Look for distortions caused by the frames.
2. Try posing problems in a neutral, redundant way
that combines gains and losses or embraces
different reference points. For example: Would
you accept a fifty-fifty chance of either losing
$300, resulting in a bank balance of $1,700, or
winning $500, resulting in a bank balance of
Framing Effects - Avoidance
3. Think hard throughout your decision-making
process about the framing of the problem. At
points throughout the process, particularly near
the end, ask yourself how your thinking might
change if the framing changed.
4. When others recommend decisions, examine the
way they framed the problem. Challenge them
with different frames.
A “Real” World Application
In his booklet (Lynn 2010) provides instruction for
waiters in the psychology of tipping as well as specific
techniques that can be used to earn larger tips.
All the suggested techniques have been scientifically
tested and the evidence of their effectiveness is
described along with the techniques. Using even a few
of these techniques should increase servers' tips by
10% to 30%.
A “Real” World Application
What’s in it for the employer?
Managers might expect
Increased sales
Greater Customer Satisfaction
Lower labour costs due to reduced
server turnover
A “Real” World Application
The methods
Tipping Expert Lynn 2010
1. Wear Something Unusual
2. Introduces Yourself By Name
3. Sell, Sell, Sell
– increased sales means increased tips
4. Crouch Next To The Table (crouch – bend down)
5. Touch Your Customers
6. Entertain Your Customers
7. Repeat Customers’ Orders
8. Call Your Customers By Name
9. Draw On The Bill ()
10. Use Credit Card Insignia (On The Trays And Bill
- as we see in the group case study 5
11. Smile
12. Write “Thank You” On The Bill
13. Forecast Good Weather
14. Give Customers Sweets (Mints)
Persuasion by Way of Example
An additional study examined the role of gratuity
guidelines on tipping behaviour in restaurants.
When diners were finished with their meals, they were
given checks that either did or did not include
calculated examples, informing them what various
percentages of their bill would amount to.
Results indicated that parties who received the gratuity
examples left significantly higher tips than did those
receiving no examples.
Seiter et al. 2011 “Persuasion by Way of Example: Does
Including Gratuity Guidelines on Customers' Checks
Affect Restaurant Tipping Behavior?” Journal of
Applied Social Psychology 41 150-159.
Clothing Colour and Tipping
Gentlemen Patrons Give More Tips to Waitresses With
Red Clothes
Red, relative to other achromatic or chromatic colours,
led men to view women presented on a photograph as
more attractive. The effect of colour on behaviour was
tested in a tipping context.
Eleven waitresses in five restaurants were instructed to
wear the same tee shirt with different colours. The
effect of colour on tipping according to patron’s gender
was measured.
Clothing Colour and Tipping
It was found that waitresses wearing red received more
tips but only with male patrons.
Waitresses colour had no effect on female patrons’
tipping behaviour.
The relation between red and sexual attractiveness are
used to explain the results.
Managerial interests related with clothing appearance
were discussed.
N. Guéguen and C. Jacob, 2014 “Clothing color and
tipping: gentlemen patrons give more tips to waitresses
with red clothes” Journal of Hospitality and Tourism
Research 38(2) 275-280.
Tipping is more prevalent in
countries that are more corrupt
Using data on tipping behaviour in 32 countries
(collected from The International Guide to Tipping) and
comparing this against the Corruption Perception Index,
researchers found that rates of corruption are higher in
countries that tip more (the correlation was 0.6 where 1
would be a perfect match).
This may strike some as odd - tipping is often seen as
altruistic, whereas corruption is immoral. Yet, the
researchers propose that tipping to ensure future good
service is comparable to a bribe and this could explain
the puzzling association (Torfason et al. 2012).
Tipping is more prevalent in
countries that are more corrupt
In a final study, researchers primed 40 US undergraduates
with either a future-oriented or past-oriented approach to
tipping. For this they used two versions of text ostensibly
taken from the Emily Post etiquette guide. After reading
that tipping should be performed as a way to ensure good
service in the future (as opposed to rewarding past good
service), the students tended to view two accounts of
political and legal bribery more leniently.
Tipping is more prevalent in
countries that are more corrupt
"The studies reported here highlight a psychological
mechanism that may help explain the surprising
association between tipping and bribery both within and
across countries," the researchers said. They added
that the findings raise some intriguing possibilities - for
example, might encouraging people to give tips
specifically as a reward for past good service act to
reduce the tolerance of bribery in society?
Magnus Thor Torfason, Francis J. Flynn, and Daniella
Kupor (2012). Here Is a Tip: Prosocial Gratuities Are
Linked to Corruption. Social Psychological and
Personality Science. Tipping is more prevalent in
countries that are more corrupt - BPS Research Digest
Restaurants Are A Mine Field
Cynical tricks restaurants use to make you spend more
revealed - Daily Mail - 18 Aug 2014
By Vincent Graff
Why that “special” on the menu is a recipe for taking
your cash: Revealed, the cynical tricks restaurants
use to make you spend more
What’s so special about a restaurant’s “daily special”?
It’s a familiar ritual. You’re sitting down, you’ve been
handed the menu and the waitress launches into a florid
description of an item that isn’t printed on the sheet
she gave you.
Restaurants Are A Mine Field
If you’re lucky, the “special” is just that, something
delicious that the chef has whipped up from fresh
ingredients that caught his eye at the market this
But very often the special — or “chef’s recommendation”,
or “dish of the day” — is special only because it’s the
most profitable item on sale, and the restaurant knows it
will sell many more if the waitress singles it out for
Restaurants Are A Mine Field
Restaurants also know that most diners are too shy or
embarrassed to ask for the price of the special — and,
guess what, the waitress “forgot” to mention what the
dish will cost you. The fake special is just one of the
secret weapons restaurants deploy to make us spend
more than we intend to when we go out to eat.
In fact, the tricks begin as soon as you’re handed the
menu (Poundstone 2014).
Priceless | William Poundstone | Macmillan
Restaurants Are A Mine Field
And because we don’t know they’re doing it, they’re
nearly always successful.
For, whether we like it or not, every time we go out to
eat, the restaurants are playing mind games with us —
while we remain, mostly, innocently oblivious.
“People rarely go into restaurants knowing exactly what
they want to order or how much they want to spend,”
explains Poundstone. “And we can be influenced by all
sorts of things that we’re not aware of.”
Restaurants Are A Mine Field
At the centre of all this is the humble menu. You might
think that the restaurant menu merely tells you what
items are available in a certain establishment.
Actually, it is a very sophisticated piece of advertising.
In fact, it’s the only piece of advertising that restaurant
owners can be certain their customers will read.
As a result, restaurants invite in “menu consultants”
whose job it is to lay out a menu that will persuade you
to spend more money than you’d expected.
Restaurants Are A Mine Field
You may, for instance, have noticed that increasingly the
prices on menus no longer employ the pound sign — or
even any evidence of pence. Where once a steak might
have cost you “£16.00” now its price is stated as “16”.
Pound signs are disappearing from menus as quickly as
cod are vanishing from the oceans.
And not just at fashionable restaurants. There are no
pound signs at Carluccio’s, Byron, Giraffe or Cafe Rouge
Restaurants Are A Mine Field
This is not a coincidence. A study (Yang et al. 2009)
found that when, in a similar move, dollar signs were left
off a menu, sales increased by eight per cent. Why so?
$ or Dollars: Effects of Menu-price Formats on
Restaurant Checks - Cornell School of Hotel
Simple, says Poundstone. “the more space you devote to
something on a menu, the more people pay attention to
Restaurants Are A Mine Field
“so if you have a pound sign and the number of pence, it
takes up more space on the page — and more space in
your mental attention.”
“And obviously the restaurant does not want you to
choose your food on the basis of price.”
That’s also the reason why menus very often feature the
items and their prices centred on the page, rather than
having the prices all lined up in a tidy column on the
right-hand side. If all the prices appear neatly one
above another, says Poundstone, that just invites us to
compare one against the other — which is the last thing
the restaurant wants us to do.
Restaurants Are A Mine Field
For that same reason, you now never see dots leading
the eye from the description of the item to the price.
Another key trick is known as “anchoring”. This is where
a restaurant places a highly expensive dish prominently
on the menu — solely in order to make the other dishes
nearby appear relatively cheap.
At Marco Pierre White’s Marco Grill in London, there’s a
35oz Tomahawk steak on sale for £70. Restaurants do
not expect to sell many of these costly “anchor” items,
says Poundstone.
Restaurants Are A Mine Field
That is not their job — instead they are simply there to
make the other dishes look like good value.
Suddenly spending £21 on a plate of Marco’s grilled
Dorset lemon sole doesn’t seem so outlandish. A lot of
research has also gone into where we look when we first
open a menu. It’s estimated that we read a menu for 109
seconds on average.
Studies have shown that when presented with a list we
remember best the item at the very start, and the one
at the end — it’s the way our memories work.
Restaurants Are A Mine Field
We will also turn our eyes first to the top right-hand
corner of a page in front of us, whether it be a doublepage or single-sheet menu.
So that corner, of course, is usually where the most
profitable items are placed.
Poundstone says some of the other techniques are so
commonplace, they seem unremarkable. Why might an
item on the menu have a box around it? It’s not because
it’s a dish the chef is particularly proud of, it’s because
it earns a high profit for the restaurant.
Restaurants Are A Mine Field
Alternatively, the menu might use other methods to
draw our attention: an item in a different colour; an
accompanying illustration; a different typeface.
Spence (Spence and Piqueras-Fiszman 2014) is alert to
the techniques in play.
Wiley: The Perfect Meal: The Multisensory Science of
Food and Dining - Charles Spence, Betina PiquerasFiszman
Restaurants Are A Mine Field
“I was in the burger restaurant Byron the other day,” he
says. “the menu is all in black and white, except for one
item, which is highlighted in bright red. And it’s their
most expensive item.”
Spence says that people are also likely to spend more if
menus — and especially wine lists — are heavy to handle.
And of course, even the words that menus use can
persuade us to splash out.
Restaurants Are A Mine Field
At the restaurant chain Giraffe — which was bought last
year for £49 million by Tesco, a company that knows all
about parting us from our cash — the toast is “artisan
sourdough toast”, the chicken nuggets have a “sesame
crunch coating” and the salsa is “fiery red roasted
chipotle salsa”.
Meanwhile the bresaola at Jamie Oliver’s Jamie’s Italian
is “elegant slices of cured beef” and at West End
eaterie The Ivy, in London, there’s an “heirloom tomato
salad” and the carrots and beetroots are both labelled
Restaurants Are A Mine Field
Spence says: “there’s research that demonstrates that
if you give food a more descriptive label, people will
enjoy it more — and they’ll also pay more for it.” One
common example of this is to attach somebody’s name to
a dish. At Randall & Aubin restaurant in London’s Soho,
they serve “slow roast Aubrey Allen pork belly”.
Few, if any, of the punters will realise who Aubrey Allen
is. For all anyone knows, it could be the name of the boy
who sweeps up the pork fat in the abattoir.
In fact, it’s the name of the butcher — based in a
Coventry business park — who supplied the meat.
Restaurants Are A Mine Field
The “chef’s recommendation” or “dish of the day” is
special because it is the most profitable item on sale and the restaurant knows it will sell more if the waitress
singles it our for attention
“this is a classic technique,” says Professor Spence. “It
could be any name there at all. But attaching the words
“Aubrey Allen” makes the dish feel like it’s more
carefully chosen. It’s not just any old pork belly. And
that allows them to put a premium on it.”
If it’s any comfort, it’s not just us poor punters who are
victims of these mean tricks.
Restaurants Are A Mine Field
Restaurateur Russell Norman is the owner of a string of
successful restaurants in London, including Polpo in
Notting Hill. He is also innocent of all the sales ploys
detailed here (except one: his menus do not use pound
“My pet hate is the use of hyperbole on menus,” he says.
“When chefs or restaurateurs describe dishes as
“delicious”, “mouth-watering” or “gorgeous”, I always
think: “How dare you! I will be the judge of that, thank
you very much.” ”
But the other day, while on holiday in New York, even he
fell victim to “anchoring”.
Restaurants Are A Mine Field
Visiting a restaurant, he was mulling over which wine to
choose from a list which featured several bottles that
cost $2,500 (£1,500).
“And because they had so many bottles that cost so
much, I ended up buying a bottle of wine for $90 (£54).
That’s nearly double what I’d normally spend. But they’d
made it look cheap by comparison.
“I’m a restaurateur — and I was still suckered!”
A Test of Intuition
Frederick (2005) introduces a three-item "Cognitive
Reflection Test" (CRT) as a simple measure of one
type of cognitive ability - the ability or disposition to
reflect on a question and resist reporting the first
response that comes to mind. He shows that CRT
scores are predictive of the types of choices that
feature prominently in tests of decision-making
theories, like expected utility theory and prospect
Frederick S. 2005 “Cognitive reflection and decision
making” American Economic Association 19 25-42.
A Test of Intuition
Indeed, the relation is sometimes so strong that the
preferences themselves effectively function as
expressions of cognitive ability - an empirical fact
begging for a theoretical explanation. The author
examines the relation between CRT scores and two
important decision-making characteristics: time
preference and risk preference. The CRT scores are
then compared with other measures of cognitive
ability or cognitive “style.”
A Test of Intuition
Despite the diversity of phenomena related to IQ,
few have attempted to understand - or even describe
- its influences on judgment and decision making.
Studies on time preference, risk preference,
probability weighting, ambiguity aversion, endowment
effects, anchoring and other widely researched
topics rarely make any reference to the possible
effects of cognitive abilities (or cognitive traits).
A Test of Intuition
The Cognitive Reflection Test (CRT)
A bat and a ball cost $1.10 in total. The bat costs $1.00
more than the ball. How much does the ball cost ______
2. If it takes 5 machines 5 minutes to make 5 widgets, how
long would it take 100 machines to make 100 widgets
3. In a lake, there is a patch of lily pads. Every day, the patch
doubles in size. If it takes 48 days for the patch to cover
the entire lake, how long would it take for the patch to
cover half of the lake ______
A Test of Intuition
The CRT was administered to 3,428 respondents in 35 separate
studies over a 26-month period beginning in January 2003. Most
respondents were undergraduates at various universities in the
midwest and northeast of America.
The CRT scores exhibit considerable difference between men
and women and the article explores how this relates to sex
differences in time and risk preferences. The final section
addresses the interpretation of correlations between cognitive
abilities and decision-making characteristics. In short
respondents who score differently on the CRT made different
Frederick S. 2005 “Cognitive reflection and decision making”
American Economic Association 19 25-42.
Where Should You Invest?
The Observer portfolio challenge pitted professionals Justin
Urquhart Stewart of wealth managers Seven Investment
Management, Paul Kavanagh of stockbrokers Killick and Co, and
Schroders fund manager Andy Brough against students from
John Warner School in Hoddesdon, Hertfordshire – and
While the professionals used their decades of investment
knowledge and traditional stock-picking methods, the cat
(Orlando) selected stocks by throwing his favourite toy mouse
on a grid of numbers allocated to different companies.
Investments: Orlando is the cat's whiskers of stock picking The Observer - Sunday 13 January 2013
Where Should You Invest?
Each team invested a notional £5,000 in five companies from
the FTSE All-Share index at the start of the year. After every
three months, they could exchange any stocks, replacing them
with others from the index. By the end of September the
professionals had generated £497 of profit compared with
£292 managed by Orlando. But an unexpected turnaround in the
final quarter has resulted in the cat's portfolio increasing by an
average of 4.2% to end the year at £5,542.60, compared with
the professionals' £5,176.60.
Investments: Orlando Is The Cat's Whiskers Of Stock Picking
Mark King - The Observer, Sunday 13 January 2013
Where Should You Invest?
One would think that professional investors, such as mutual
funds, hedge funds and institutional managers, would be
behavioural-data investors. And indeed, the analysts within such
organizations are most often behavioural-data investors. But the
further up one goes in the organization and the larger the fund,
the more like the crowd it becomes. This is because in order to
grow assets under management, funds must attract and retain
emotional investors, which means catering to client emotions and
taking on the features of the crowd. As the fund grows in size,
it increasingly invests in those stocks favoured by the crowd,
since it is easier to attract and retain clients by investing in
stocks to which clients are emotionally attached. A fund might
also mimic the index to lock in a past alpha or become a closet
indexer to avoid style drift and tracking error. Each of these
represents a different way of catering to investor emotions
(Howard 2013).
Where Should You Invest?
So, what may start out as a fund managed by behavioural-data
investors taking positions opposite the crowd often ends up
morphing into something that is acceptable to the crowd. As
argued by Berk and Green (2004), such behaviour is rational on
the part of the fund, as revenues are based on assets under
management. Consistent with this argument, others have found
that returns decline as funds grow large (Howard 2013).
Where Should You Invest?
In three studies on predicting the stock market, Ortmann et al.
(2008) reported that recognition-based portfolios (the set of
most-recognized options), on average, outperformed managed
funds such as the Fidelity Growth Fund, the market (Dow or
Dax), chance portfolios, and stock experts. In contrast, Boyd
(2001) found no such advantage when he used college students’
recognition of stocks rather than that of the general public. It
is imperative to understand why and under what conditions this
simple heuristic can survive in financial markets without making
a systematic market analysis. This remains an open question.
Next Week
Asset Pricing

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