试听180秒085: Framing,Reference Points and Loss Aversion framing

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Hello,Himalaya’s subscribers. My name is Timothy Taylor, and today we're going tostart our discussion of behavioral economics by talking about how is thesituation described, reference points, loss aversion, and framing. Let me startby telling you about a pattern I've noticed. Some of the restaurants, not farfrom where I live, have a special deal. If they offer if you come in early fordinner, for example, if you come to eat before about six o'clock, the food anddrinks cost less. And restaurants often advertise this deal. They'll say, tenpercent off for early diners, twenty percent off for early diners.

I've seen this a bunch of times, but Ihave never in my life seen a single restaurant which said,“Food and drinks hereare twenty percent more for all later diners. It costs more to eat here aftersix o'clock.”  Why not? I mean, afterall, saying it's twenty percent less before six o'clock is really the samething as saying it's twenty percent more after six o'clock. So why describe thepattern in this way? Well, you know, you know the answer to this question inyour heart already. If the seller says twenty percent off for an early dinner,that sounds like a good deal and encouraging, if the seller says twenty percentmore for a later dinner, that sounds like a bad deal and discouraging, eventhough they mean the same, they don't feel the same.

There's something in my psychology, inthe psychology of most people that tells me that one is attractive and theother isn't. And when the restaurant or another seller chooses to emphasizethat something costs less at a certain time, not that it costs more at other times,it suggests the restaurant knows something about how my brain works. These nextthree lectures are going to discuss the subject of what's known as behavioraleconomics. We'll start off in this lecture with just first of all, what isbehavioral economics? Second of all, we’ll talk about loss aversion andreference points. And third we’ll talk about mental accounting and framing.

Let's start with what is behavioraleconomics.  Well, the basic idea issimple. We're going to combine psychology and economics. In economics a basicidea we've been using for this whole group of lectures is that people respondto incentives. But studies of psychology show that people have certain patternsin their thinking which are more complex than just responding to incentives， more complex than just more isgood and less is bad. When most people look at trade offs, turns out that themost of the time have something in their psychology with systematic biases, forexample, thinking that money off sounds good, but paying extra sounds bad.

This idea of behavioral economics hasbeen a hot subject in economics the last ten or twenty years. Some of theresearch is about finding evidence of these mental biases, and thinking abouthow they come up and when they apply. But economists go beyond just thinkingabout whether the bias exists. They think if a company is selling something orhiring workers, and it knows that these psychological biases exist, could thecompany take advantage of it to increase sales, or have workers try harder？ On the other side if you as aconsumer know you have certain biases, is there some action you can take toprotect yourself，o it's harderfor others to take advantage of you?

Or from a government point of view， might there be government policiesthat are related to the psychological biases? So in this lecture, and the nextone we’ll focus on different kinds of biases and how they show up in consumerand business decisions. And in the following lecture, we'll talk aboutgovernment policies that use behavioral economics both in China and around theworld. Our second part of this lecture is about the idea of what's calledprospect theory, which includes reference points and loss aversion.

And this idea of prospect theory issomething for which an economists named Daniel Kahneman won the Nobel Prizein Economics back in 2002. In basic economic thinking, the assumption again, isthat if you want to see what makes people happy or unhappy, you look at theirincome or their consumption, more means more happiness, less means lesshappiness.  Daniel Kahneman andother behavioral economists have built on that idea with a similar but slightlydifferent twist as they brought psychology into the picture. Let's first talkabout the idea of reference points.

The idea of a reference point is thatdecisions are often determined not just by the absolute level of more or less,but also by a reference point. And if you're above the reference point, youfeel good. If you're below it, you feel bad. Many of us know this idea ofreference point in our everyday life. For example, imagine that you are feelinga little behind on your bills. You've got some money that you will, maybe youaren't getting paid quite as much as you think you need to get paid, and youfeel pressure to work harder,catch up,take actions. On the other side if youfeel like you're a little ahead of your bills and you're doing alright and youfeel relaxed, it's not about more or less. It's about thinking about comparedto where I want to be. Am I comfortable or am I not?

There's a study done on taxi driversin the United States. And in the US at least, it's common that taxi drivers canoften choose how many hours they'll drive and how much money they'll make in acertain day. Turns out that many taxi drivers start with a goal for how muchmoney they want to make each day. If it's a busy day and there are lots andlots of passengers, taxi drivers get that money fairly quickly. And they mightquit early that day. But if it's a slow day, may be bad weather, hard to getpassengers, then they work longer hours until they get the amount they want.

Now, if you think about it, this justdoesn't make sense. It would make a lot more sense to work longer hours on busydays, because it's easier to earn money with lots and lots of passengers. Andthen you could work less on the slow days where it's harder to earn money. Butthe taxi drivers are reacting to the reference point, how much we want to makein a given day, not to whether it's easier or harder to make money that day.Another example of a reference point involves investors. A common pattern isthat when you look at people who buy and sell stocks, or buy and sell property,they are much more likely to sell when the price has gone up, not when theprice has stayed the same or gone down.

Now, this doesn't really make sense.If you think about it. After all, if the price went up, maybe it'll keep goingup and you should hang onto it. If the price went down, maybe it will keepgoing down, and you would be better off selling it now. But if you are reactingto a reference price, you feel happy when the price has gone up and you're morewilling to sell, if conversely, when the price goes down, you feel unhappy andyou think yourself, I need to hold on to it just a little bit longer, soinstead of thinking about what's likely to happen in the future, you referringto the reference price of what was originally paid.

Now let's take the idea of a referenceprice and combine it with the idea of what's called loss aversion. The idea ofloss aversion goes like this. Think about the happiness or what economistssometimes call utility, that you would feel from receiving a certain amount ofadditional income, say a hundred yuan. And now think about the unhappiness shewould feel from losing the same amount of income, again, say a hundred yuan.The theory of loss aversion is the amount of happiness you get from the gain,is going to be smaller in size than the unhappiness you feel from the loss.

The idea of loss aversion explainssome of the example at the start of this lecture. Why is it that firmsadvertise a price is lower at a certain time? Why don't they say it's higher atother times? Mathematically, it might be the same, but a lower price feels likea gain, a higher price feels like a loss, and people have loss aversion. Someeconomists did a study of loss aversion a few years ago in China at a high techmanufacturing plant. One set of workers at this manufacturing plant were givenan incentive that if they produced at a certain rate, they would get a bonus.And other workers were given an incentive that if they did not produce at acertain rate, they would lose something. It was set up so that overall workersin both groups were going to be paid the same amounts. What was different wasthat in one case, it was described as a bonus gain, and in the other case as aloss of something being taken away. And it turned out in that study, the threatof a loss was a more powerful motivator. It encouraged people to work harder.It was a more powerful motivator than the promise of a gain, feeling likeyou're losing something hurt more than the benefit that you were gainingsomething. When you put these ideas of reference points and loss aversiontogether, you can build up a theory of how people react in situations ofuncertainty with possibilities of gains or losses in the future. And mostactions that you take now can have some effect in the future. Decisions aboutworking, or education, or investment, or buying goods over time. So theseissues of reference points and loss aversion come up over and over again. Theyseem to be built into human psychology. So here's some questions for you. Whatare the reference points you're using in your own life?

And are you choosing these referencepoints with careful thought about what you really want? Or are you justreacting to them? You could ask the same questions about loss aversion. We'reall somewhat loss averse. But are you sometimes too loss averse? Because ifyou're too worried about taking losses, you might be unwilling to take somerisks that could pay off over time, like getting additional training orstarting a company or moving jobs. Of course, I'm not saying take crazy chancesall the time, that would be silly. But if you're too loss averse to take somesensible and thoughtful risks now, and then when they come up, you might notget very positive outcomes,either.

Prospect theory, reference points andloss aversion are just one example of the kinds of psychological bias that mostof us carry around in our minds. Here's another example,it's called mentalaccounting. And mental accounting is a term used by Richard Thaler, who was awinner of the Nobel Prize in economics in 2017 for his work in the area ofbehavioral economics. This is just one of Thaler’s many ideas, but Thalernoticed that when people think about the money they have, they often put it inseparate mental categories, which he called mental accounts.

And in his studies, there were oftenthree big categories. There was the mental account of what you were planning tospend for day to day expenses. There was a mental account for saving up forsome big expenditure, like a vacation or maybe something like a television. Andthere was saving for retirement. But when people have these mental accounts intheir minds, they often stop thinking about the trade-offs between theaccounts. For example, imagine you buy a lottery ticket and you win a mediumsized prize. Do you think what fun? I will  spend all this on having some fun right now,ordo you think how lucky I am? I will take all this money and put it in myretirement fund. What mental account do you think of first? Or imagine that youown some property or perhaps a financial investment, and the value goes way up.In a way, this is like you just bought a lottery ticket and you won something.You have now have wealth you didn't have before. Do you think to yourself “Great.The value of the property went up. I'll go out and spend more on having funright now.” Or do you think I'd better save this up for the future and hang onto this money. Many people react to winning a lottery ticket in one way and arise in property values or investments in a different way， in part because they have them indifferent mental accounts. In fact, there's sometimes people who borrow a lotof money for short term expenses, and at the same time they have a lot ofwealth in their property or their wealth management account. They have debt inone mental account and their wealth in a different mental account.

Now I'm not saying mental accounts areright or wrong，referencepoints are right or wrong，loss aversion is right or wrong. I'm just saying these are all partsof human psychology and a lot of the time people aren't necessarily very awareof them. They often come up just because of how a certain situation isdescribed to you or as economists sometimes say how a certain decision isframed. What is the frame can think of it almost like a picture frame that goesaround this decision. Is it focusing on one part of the decision like losses orgains? Which reference point are you looking at？ Which mental account are you putting things in?

And also do you choose these choices?Or do they just sort of happen to you? If you're thinking about choosing yourown mental accounts, whether you're running a business or being a consumer orbeing a worker, you really want to think about how your mental accounts, yourloss aversion, your reference points may be affecting you. Let's finish herewith some review questions. What is behavioral economics? And then in thislecture, let's go back over a few of the terms and make sure you understandthem. Maybe come up with an example in your mind for each one. What's areference point? What is loss aversion? What is a mental account? What isframing. The next lecture we'll talk about some other topics in behavioraleconomics, focusing on how people have only limited tension and limited brainpower.

I'm Timothy Taylor. Thank you for listeningto Himalaya.