Accounting

Tversky and Kahneman (1986) conducted an experiment on decision-making. Respondents were given a series of problems expressed (or ‘framed’) in different ways. Consider the following paired problems:

Assume that you are €300 richer than you are today. You have to choose between i) a sure gain of €100 ii) a 50% chance of gaining €200 and a 50% chance of gaining nothing. 2 Assume that you are €500 richer than you are today. You have to choose between i) a sure loss of €100 ii) a 50% chance of losing nothing and a 50% chance of losing €200. First, decide your own answers to these questions. Second, compare your answers with the results obtained by the researchers. They found that in respect of the first problem, 72% of their 126 respondents chose the sure gain of €100, and the remaining 28% chose the second option. In respect of the second problem they found that 36% of 128 respondents chose the sure loss of €100, and the remaining 64% chose the second option.

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