Definition
Framing Effect
The framing effect is the way the same financial information leads to different decisions depending on how it is presented or 'framed'.
A fund advertised as having '90% positive years' feels safer than one described as 'down in 1 of every 10 years', though they are identical. Insurance sold as 'protect your family' triggers a different response than the same product framed as a low-return savings plan. Lenders frame EMIs as small monthly numbers to hide a large total interest cost.
Marketers exploit framing constantly — 'no-cost EMI', 'only ₹X a day', discounts shown as percentages or rupees depending on which looks bigger. To defend yourself, reframe every offer in neutral, total terms: the full price, the all-in interest, the annualised return, and the worst-case as well as the headline.
Related terms
- Prospect TheoryProspect theory, developed by Kahneman and Tversky, describes how people actually evaluate risky choices — judging outcomes as gains or losses from a reference point rather than in terms of final wealth.
- Mental AccountingMental accounting is the tendency to treat money differently depending on its source or label, instead of recognising that all money is fungible.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.