SL Gain/Loss framing Flashcards
How do you define Gain/loss framing?
A way of presenting outcomes is by highlighting either the positive outcomes (gains) or negative out- comes (losses). This nudge only influences how the decision-maker views the possible outcomes and does not change the outcomes themselves.
An example of gain framing could be ”Quitting smoking today adds years to your life”, ”Investing early provides dependable financial security”, ”Getting vacci- nated protects you and those you love”, where as an example of loss framing could be ”Every cigarette shortens your life”, ”Saving too little puts your future in jeopardy”, ”Not getting vaccinated puts you and others at risk of hospitalization and even death”
What biases (mechanism) does gain/loss framing address?
Gain/loss framing works by taking advantage of certain cognitive biases, primarily loss aversion. Loss aversion is the phenomenon in which individuals experience a greater magnitude of pain when something is lost than the gain they experience when something of equal value is gained.
Gain/loss framing can be used to counteract other biases including, but not limited to, present bias, bounded self-control, and confirmation bias. These, and more, can be seen in the three studies.
Tips for implementation
It’s unlikely that all individuals will be equally receptive towards gain-focused and loss-focused mes- saging, however determining how to frame the message can be difficult. It’s best to closely analyze the subjects, the environment in which the choices are made, the nature of the gains/losses, and any potential backlash to determine how best to frame the messaging.
However, because gain/loss framing does not change any prospects, it’s generally fairly cheap and easy to implement regardless of context.
Levitt, S. D., List, J. A., Neckermann, S., & Sadoff, S. (2016). The behavioralist goes to
school: Leveraging behavioral economics to improve educational performance. American
Economic Journal: Economic Policy
a) Outline the research question and the design of the paper.
b) Describe the results
Question a)
Research Question:
The primary research question of the paper “The Behavioralist Goes to School: Leveraging Behavioral Economics to Improve Educational Performance” by Steven D. Levitt, John A. List, Susanne Neckermann, and Sally Sadoff is:
“Can behavioral economics insights, such as incentive structures and framing effects, improve student performance in standardized tests?”
The study investigates why student achievement remains low despite high returns to education and whether students make behavioral “mistakes” that lead to underinvestment in education. The authors explore the role of factors such as discounting of future rewards, loss aversion, and non-monetary incentives in student effort and performance.
Research Design:
The study uses a series of large-scale field experiments conducted across multiple school districts in the U.S. to test how different incentive structures impact student performance on standardized tests.
Sample and Setting:
- The experiments were conducted across three school districts in and around Chicago.
- The study involved over 6,000 elementary and high school students across different grades (elementary, middle, and secondary).
- The experiments were carried out over multiple years and locations, ensuring generalizability.
Experimental Conditions (Treatments): The study tested various incentive structures, randomly assigning students to one of the following conditions:
- Monetary Incentives: Cash rewards of $10 or $20.
- Non-Monetary Incentives: A trophy (symbolic reward).
- Framing Effects: Rewards presented as gains (earned after the test) or losses (given upfront and taken away if performance didn’t improve).
Timing of Incentives:
- Immediate Rewards: Given immediately after the test.
- Delayed Rewards: Given one month after the test.
Randomization and Control Groups:
Students were randomly assigned to treatment or control groups.
The control group included:
- No intervention (students took the test as usual).
- Verbal encouragement only (no rewards, but students were encouraged to try harder).
The randomization ensured that pre-existing differences between students did not bias the results.
Outcome Measurement:
The primary outcome was student performance improvement on standardized tests. The difference in test scores before and after the intervention was used to measure effectiveness.
Question b)
Key Findings Related to Design:
Monetary and non-monetary incentives significantly improved student test scores. Gain a reward.
Younger children were more responsive to non-monetary rewards (e.g., trophies).
Framing incentives as losses did not significantly alter student performance.
Delayed rewards had no effect, suggesting that students discount future rewards heavily.
Why there was no statistical effect from using framing incentives as losses, we would argue that it is not fitted in this context. Instead the findings suggest that immediate incentives—both monetary and non-monetary— where you gain a reward, are effective in improving test performance, while delayed rewards fail to motivate students, highlighting the importance of short-term incentives in education policy.
*Hershfield, H. E., Shu, S., & Benartzi, S. (2020). Temporal reframing and participation in a
savings program: A field experiment. Marketing Science,
a) Outline the research question and the design of the paper.
b) Describe the results
Question a)
Hershfield et al. [2020] researches whether people are less sensitive to present day losses, which will turn into future gains, when such losses are framed in a smaller, more granular format (like 5$ a day) compared to a larger, less granular format (e.g. $150 a month).
design:
They do this by setting up a field experiment in a savings/investment app that automatically withdraws the money from the participant’s bank account.
The participants are randomized into five groups (three primary groups (total amount of $150), and two for robustness checks (total amount $30 a month)), where they have to pay $150 a month, $5 a day, $35 a week, $7 a week and $30 a month respectively.
Question b)
They find that the more granular the framing, the more people signed up, and that retention rates differed as a function of the condition after one month, for the remainder of the longitudinal study, they remained consistent across conditions.
Framing deposits in the most granular terms then seems to reduce the participation gap between lower and higher income individuals in this recurring deposit program.
*Imas, A., Sadoff, S., & Samek, A. (2017). Do people anticipate loss aversion?. Management
Science, 63(5), 1271-1284.
a) Outline the research question and the design of the paper.
b) Using figure 18 and 19 describe the results
Question a)
“Do individuals accurately anticipate their loss aversion when selecting between gain and loss contracts, and how does this affect their effort and contract preferences?”
The study investigates whether people work harder under loss-framed contracts compared to gain-framed contracts and whether they prefer one contract type over the other. It tests standard behavioral economic models predicting that individuals will exert more effort under loss contracts but prefer gain contracts due to loss aversion
Design:
Research Design:
The study employs a series of incentivized laboratory experiments to measure both effort and contract preferences under gain and loss contract conditions.
Experimental Setup:
The study consisted of two experiments conducted at Carnegie Mellon University.
Participants were randomly assigned to different treatment groups in controlled laboratory settings.
Experiment 1: Effort under Gain and Loss Contracts
Objective: Measure whether individuals exert more effort under loss contracts compared to gain contracts.
Participants: 83 students, randomly assigned to two treatments:
- Gain Contract (GAIN): Participants had the opportunity to earn a T-shirt if they met a performance threshold.
- Loss Contract (LOSS): Participants were initially given a T-shirt and would lose it if they failed to meet the threshold.
Task: A real-effort task (slider task), where participants had to move sliders to specific positions within a time limit.
Outcome Measure: The number of completed sliders.
Experiment 2: Contract Preferences and Anticipation of Loss Aversion
Objective: Measure whether people prefer gain or loss contracts.
Participants: 85 students, randomly assigned to either the Gain or Loss treatment.
Method: Participants stated their willingness to pay (WTP) to work under either a gain or loss contract.
Question b)
Experiment 1:
We find that people indeed work harder under loss than gain contracts, as the theory predicts.
Experiment 2:
Surprisingly, rather than a preference for the gain contract, we find that people actually prefer loss contracts.
In exploring mechanisms for our results, we find suggestive evidence that people do anticipate loss aversion but select into loss contracts as a commitment device to improve performance.
