Framing decisions: Hypothetical and real

Abstract

This paper addresses the general issue of whether the practice of investigating human decision making in hypothetical choice situations is at all warranted, or under what conditions. A particularly relevant factor that affects the match between real decisions and hypothetical decisions is the importance of a decisionÕs consequences. In the literature experimental gam- bles tend to confound the reality of the decision situation with the size of the payoffs: hypothetical decisions tend to offer large payoffs, and real decisions tend to offer only small payoffs. Using the well-known framing effect (a tendency of risk-aversion for gains and of risk-seeking for losses) we find that the framing effect depends on payoff size but hypothetical choices match real choices for small as well as large payoffs. These results appear paradoxical unless size of incentive is clearly distinguished from the reality status of decision (real versus hypothetical). Since the field lacks a general theory of when hypothetical decisions match real decisions, the discussion presents an outline for developing such a theory.

Publication
Organizational Behavior and Human Decision Processes