In economics, framing means the manner in which a rational choice problem has been presented. Face-to-face trading interactions among on the New York Stock Exchange trading floor In the social sciences, economics is the study of human choice behavior and how it effects the production, distribution, and consumption of scarce resources. ... Rational choice theory is a way of looking at deliberations between a number of potential courses of action, in which rationality of one form or another is used either to decide which course of action would be the best to take, or to predict which course of action actually will...

Amos Tversky and Daniel Kahneman have shown that framing can affect the outcome (ie. the choices one makes) of choice problems, to the extent that several of the classic axioms of rational choice do not hold. Tversky and Kahneman (1981) demonstrated systematic reversals of preference when the same problem is presented in different ways, for example in the 'Asian disease' problem. Participants were asked to "imagine that the U.S. is preparing for the outbreak of an unusual Asian disease, which is expected to kill 600 people. Two alternative programs to combat the disease have been proposed. Assume the exact scientific estimate of the consequences of the programs are as follows." The first group of participants were presented with a choice between two programs: Amos Tversky (March 16, 1937 - June 2, 1996) was a pioneer of cognitive science, a longtime collaborator of Daniel Kahneman, and a key figure in the discovery of systematic human cognitive bias and handling of risk. ... Daniel Kahneman Daniel Kahneman (born March 5, 1934 in Tel Aviv, in the then British Mandate of Palestine, now in Israel), is a key pioneer and theorist of behavioral finance, which integrates economics and cognitive science to explain seemingly irrational risk management behavior in human beings. ...

• Program A: "200 people will be saved"
• Program B: "there is a one-third probability that 600 people will be saved, and a two-thirds probability that no people will be saved"

72 percent of participants preferred program A (the remainder, 28 percent, opting for program B). The second group of participants were presented with the choice between:

• Program C: "400 people will die"
• Program D: "there is a one-third probability that nobody will die, and a two-third probability that 600 people will die"

In this decision frame, 78 percent preferred program D, with the remaining 22 percent opting for program C. However, programs A and C, and programs B and D, are effectively identical in accordance with von-Neumann's expected utility hypothesis, in which the value of the outcome of an event is multiplied by the probability of its occurrence. A change in the decision frame between the two groups of participants produced a preference reversal, with the first group preferring program A/C and the second group preferring B/D. The expected utility hypothesis is the hypothesis in economics that the utility of an agent facing uncertainty is calculated by considering utility in each possible state and constructing a weighted average. ...

Framing biases affecting investing, lending, borrowing decisions make one of the themes of behavioral finance. Preference reversals and other associated phenomena are of wider relevance within behavioural economics, as they contradict the predictions of rational choice, the basis of traditional economics. Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel winner Daniel Kahneman, was an important figure in the development of behavioral finance and economics and continues to write extensively in the field. ... Rational choice theory is a way of looking at deliberations between a number of potential courses of action, in which rationality of one form or another is used either to decide which course of action would be the best to take, or to predict which course of action actually will...

Further reading

• Tversky, Amos, and Daniel Kahneman, 1981. "The Framing of Decisions and the Psychology of Choice." Science 211: 453-458.
• "Rational Choice and the Framing of Decisions", A.Tversky, D.Kahneman, Journal of Business, 1986, vol.59, no.4, pt.2.
• Chris Yiu's Choice Under Uncertainty page
• De Martino et al, 2006. "Frames, Biases, and Rational Decision-Making in the Human Brain". Science 313: 684-687.