Programs A & C are the same (if 200 people are saved then 400 people die) and Programs
B & D are the same. In all four choices, 200 people are expected to live and 400
people are expected to die (B and D have greater variability than A and C).
However, in choosing between A & B, 72% of the physicians initially given this problem
by Kahneman and Tversky chose A, and in choosing between C & D, 78% chose D. If
A & C are the same, why did people "switch"?
In this famous experiment, Tversky and Kahneman shed light on the problem of framing;
how we ask a question, or frame a problem, can influence our choice of outcomes.
In this example, people choose to "save" 200 people and choose A, but avoid the
alternative where 400 people "die" in C, instead choosing the riskier course of
action, even though the expected outcome is the same.
Traders constantly assess alternatives in making decisions about prices. In evaluating
alternatives, it is important to understand that a mistake framing the problem could
lead to choosing an inferior alternative.