Framing Effect in Behavioral Finance: Lessons for Investors
The framing effect in behavioral finance significantly influences Indian investors' decisions, often leading to irrational choices. Even experienced investors can fall victim to psychological traps that affect their perception of risks and rewards.
One such trap is the Framing Effect, a concept identified by Nobel laureates, which continues to impact investor behavior globally, including in India. This cognitive bias occurs when people make decisions based on the presentation of information rather than the actual facts.
The Framing Effect is a cognitive bias where people make decisions based on how information is presented (“framed”) rather than on the actual facts.
Understanding the framing effect is crucial for investors to avoid common mistakes and make informed decisions. By recognizing how this bias operates, investors can learn from real examples and develop strategies to mitigate its influence on their investment choices.
Author's summary: Framing effect influences investors' decisions.