Broad vs. Narrow Framing
Broad vs. Narrow Framing describes the human tendency to make decisions in isolation (narrow framing) versus comprehensively (broad framing). Humans are naturally narrow framers due to cognitive biases like WYSIATI, which leads to inconsistent preferences and is mathematically inferior to the broader, rational-agent approach.
THE IDEA
BROAD OR NARROW?
This set of choices has a lot to tell us about the limits of human rationality. For one thing, it helps us see the logical consistency of Human preferences for what it is—a hopeless mirage. Have another look at the last problem, the easy one. Would you have imagined the possibility of decomposing this obvious choice problem into a pair of problems that would lead a large majority of people to choose an inferior option? This is generally true: every simple choice formulated in terms of gains and losses can be deconstructed in innumerable ways into a combination of choices, yielding preferences that are likely to be inconsistent.
The example also shows that it is costly to be risk averse for gains and risk seeking for losses. These attitudes make you willing to pay a premium to obtain a sure gain rather than face a gamble, and also willing to pay a premium (in expected value) to avoid a sure loss. Both payments come out of the same pocket, and when you face both kinds of problems at once, the discrepant attitudes are unlikely to be optimal.
There were two ways of construing decisions i and ii:
- narrow framing: a sequence of two simple decisions, considered separately
- broad framing: a single comprehensive decision, with four options
Broad framing was obviously superior in this case. Indeed, it will be superior (or at least not inferior) in every case in which several decisions are to be contemplated together. Imagine a longer list of 5 simple (binary) decisions to be considered simultaneously. The broad (comprehensive) frame consists of a single choice with 32 options. Narrow framing will yield a sequence of 5 simple choices. The sequence of 5 choices will be one of the 32 options of the broad frame. Will it be the best? Perhaps, but not very likely. A rational agent will of course engage in broad framing, but Humans are by nature narrow framers.
The ideal of logical consistency, as this example shows, is not achievable by our limited mind. Because we are susceptible to WYSIATI and averse to mental effort, we tend to make decisions as problems arise, even when we are specifically instructed to consider them jointly. We have neither the inclination nor the mental resources to enforce consistency on our preferences, and our preferences are not magically set to be coherent, as they are in the rational-agent model.
When to use it
Portfolio management: An investor avoids narrow framing by not panicking over a single stock's loss but evaluating it in the context of the entire portfolio's diversification and long-term goals.
Budgeting: Instead of asking 'Can I afford this latte?' (narrow), a person asks 'Does this latte fit my monthly discretionary spending budget?' (broad).
Business strategy: A company avoids breaking down a complex negotiation into sequential, isolated offers. Instead, they use broad framing to prepare a single comprehensive package covering all issues simultaneously.
FROM THEORY TO EVERYDAY LIFE
In practice
Classic Two-Decision Framing Problem
The text presents a set of two decisions. Decision 1 involves a sure gain vs. a gamble. Decision 2 involves a sure loss vs. a gamble. Under narrow framing, a risk-averse person might take the sure gain and the loss-gamble. Under broad framing, considering all four possible combinations of the two binary choices reveals that this specific narrow frame combination leads to a strictly worse financial outcome than the optimal broad frame choice. Combining risk-aversion for gains with risk-seeking for losses is costly.
A MOMENT TO REFLECT
Put it to work.
Think about a recent series of small purchases or financial decisions. How would assessing them as a single 'portfolio' of decisions (broad framing) change your evaluation of their overall value or cost?
The text states that broad framing is always superior to narrow framing. Despite knowing this, why do people consistently default to narrow framing in their daily lives?
Imagine you are a manager evaluating the risks of five separate projects. How could narrow framing lead you to underestimate the total risk faced by your organization?
Often confused with
References
- Thinking, Fast and Slow — Daniel Kahneman (2011)
CONTINUE THE CONVERSATION
Source texts
- Thinking, Fast and Slow (Daniel Kahneman)