The framing of zero has a substantial effect on judgment: In the context of a simple gamble a small loss is more attractive than gaining nothing, but the same small loss is less attractive than losing nothing

Framing Zero: When Losing Nothing is Better Than Gaining Nothing. Marcus Wardley, Max Alberhasky. Journal of Behavioral and Experimental Economics, November 9 2020, 101641. https://doi.org/10.1016/j.socec.2020.101641

Rolf Degen's take: https://twitter.com/DegenRolf/status/1326095730495401984

Highlights

• The framing of zero has a substantial effect on judgment and decision-making

• A loss is more attractive than gain nothing but less attractive than lose nothing

• These effects are consistent with an affect and reference point explanation

Abstract: The framing of zero has a substantial effect on judgment and decision-making, a fact which is often ignored or unacknowledged by many authors. Although prior research has shown that zero carries a special meaning, no prior research has specifically examined the framing of zero. Across four studies, the current research demonstrates the effect the framing of zero has on judgment and decision-making and explores the underlying mechanisms. In the context of a simple gamble a small loss is more attractive than gaining nothing, but the same small loss is less attractive than losing nothing. The present studies test and support an explanation of these findings based on the concept of reference points and the affect heuristic. The framing of zero in these decision problems acts as a point of comparison, or reference point, affecting how evaluators feel about the bet. These results establish the importance of framing zero in judgment and decision-making and sheds light on the mediators of this effect.

Keywords: framingzerogamblesaffectreference points