54. Cognitive biases in risk management - Framing - Alex Sidorenko

The framing effect is an example of cognitive bias, in which people react to a particular choice in different ways depending on how it is presented; e.g. as a loss or as a gain.[1] People tend to avoid risk when a positive frame is presented but seek risks when a negative frame is presented.[2] Gain and loss are defined in the scenario as descriptions of outcomes (e.g. lives lost or saved, disease patients treated and not treated, lives saved and lost during accidents, etc.).

Prospect theory shows that a loss is more significant than the equivalent gain,[2] that a sure gain (certainty effect and pseudocertainty effect) is favored over a probabilistic gain,[3] and that a probabilistic loss is preferred to a definite loss.[2] One of the dangers of framing effects is that people are often provided with options within the context of only one of the two frames.