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Welcome. to our. presentation.

00. Behavioral Finance and Wealth Management Group No: 08.

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A digital balance scale using circles. Framing Bias Description Framing bias is tendency of decision-making to respond differently with various situations based on the context in which a choice is presented or framed. Framing bias is perceptive error; it occurs when people rely too much on how information is conveyed. As a result, decision-makers often ignore factual evidence. Sentences can be framed positively or negatively—often, individuals respond to the tone and style of presentation. This perception influences their decisions. In financial decision-making, this bias can be challenged by thinking rationally. Before making a choice, investors must evaluate the options based on factual data..

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Another Example. Doctor talking patient Vectors & Illustrations for Free Download | Freepik.

Narrow Framing. Sub category Focus on only aspects , rather ignore crucial factors Influence on decision making.

POSITIVE FRAMING GRAB GET SAVE TIME. TODAY NOW. NEGATIVE FRAMING AVOID CONQUER STOP WASTING TIME, MONEY, ETC DON'T MISS OUT DON'T LET....

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DECISION MAKING BIASES. Practical Application. This presentation provides a brief overview of how to understand securities portfolio performance, using the example of Portfolio ABC..

99.7% Of the data are within 3 standard deviations Of the mean 95% within 2 standard deviations within 1 standard deviation — 30 - 20 + 20 + 30.

Portfolios 95% probability gain or loss range Long term return ABC -20% to 40% 10% DEF -6% to 18% 6% XYZ 2% to 4% 3%.

Scenario presented where Portfolio ABC lost 15% of its value over the past year..

Respondents may reject a portfolio in one question but proceed with it in another question due to framing..

When the investor become more pleasure to invest in second scenario, he/she is affected by framing bias, because both scenarios generated equal actual return..

“ Choices, Values, and Frames,” This research paper was entitled in 1984 by Daniel Kahneman and Amos Tversky. They studied framing bias in a sample population of physicians by Posing the following questions to each participated Doctors. Survey scenario : [Imagine that the U.S. is preparing for the outbreak of an unusual Asian disease, which is expected to kill 600 people. Two alternative programs to combat the disease have been proposed. Assume that the exact scientific estimates of the consequences of the programs are as follows]:.

Reactions Program A Program B 0.72000000000000031 0.28000000000000008.

Reactions Program C Program D 0.22 0.72000000000000008.

DECISION MAKING BIASES. 1. Framing Bias. Behaviors that can cause investment mistakes.

46010 00/0 0\0. Diagnostic testing (Mini test-1).

0=100/0 26%. Diagnostic testing (Mini test-1). Comfortable.

Mini Test-2. Question-1 : You are preparing for retirement. You need $50000 annually to live comfortably; but you could take care of basic needs at about $40000 and could even survive on a minimum of $30000 if necessary. Further assume that there is no inflation. Now, imagine that you are choosing between two hypothetical investment options . Option 1 Option 2.

Mini Test-2. Question-2 : You are preparing for retirement. You need $50000 annually to live comfortably; but you could take care of basic needs at about $40000 and could even survive on a minimum of $30000 if necessary. Further assume that there is no inflation. Now, imagine that you are choosing between two hypothetical investment options . Option 1 Option 2.

ADVICE. Advices. 1 Narrow Framing. 2 Framing and Loss Aversion.

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