The Interaction of Framing and Decoy Effects on Risk Preferences

Abstract

This study investigates the interaction between the decoy effect and the framing effect in decision-making. It is aimed to understand how the presence of asymmetrically dominated alternatives influences risk preferences under different framing conditions and to find an effect on framing. Building on the recent study by Di Crosta et al. (2023), this research employs a 2 (frame: positive vs. negative) × 3 (choice set: original, congruent decoy, incongruent decoy) within-subjects design across two experiments.This study investigated the interaction between Framing effect(FE) and Decoy effect(DE) in the case of both incongruent decoy (ID) and congruent decoy(CD) in a sample of (N=50) of the age of 18-26 years in both the experiments. In experiment 1 participants were presented with general scenarios and in experiment 2 participants were presented with medical specific scenarios and asked to choose between options that varied in risk level and contextual framing. Results confirm that positively framed scenarios led to risk-averse choices, while negatively framed ones prompted risk-seeking behavior, consistent with prospect theory. Results show that the ID option reduces the FE in positive framed conditions only in experiment 1 but in experiment2 there’s no effect shown by the ID option in both positive-negative framed conditions, while adding the CD option in both positive and negative framed condition increase the FE in both experiment 1 and experiment 2. Additionally, the inclusion of the CD option increased the decision confidence level in the both experiments, whereas there was no significant effect shown by the ID option in both experiments.