Framing Effects
The first step in making a decision is to frame the
question.
It's also one of the most dangerous steps.
Question: Which English county is surrounded by
water?
The way a problem is framed can profoundly influence the
Answer: Isle of Wight – in 1974 it was
choices you make.
reconstituted as a non-metropolitan ceremonial
county which gave it its own Lord Lieutenant and
A frame can establish the status quo (recall lecture 3.44)
was recognised as a postal county.
or introduce an anchor (recall lecture 1.101). It can
highlight investment costs or lead you toward confirming
evidence.
4.11
Saturday, 12 March 2016
11:21 AM
Framing Effects
How a question is posed can be crucial, for instance.
Have you stopped beating your wife?
4.22
Framing Effects
This discussion closely follows that of Kahneman
(2011). Not all frames are equal, and some frames are
clearly better than alternative ways to describe (or
to think about) the same thing. Consider the
following pair of problems:
4.33
Framing Effects
A woman has bought two $80 tickets to the theatre.
When she arrives at the theatre, she opens her
wallet and discovers that the tickets are missing.
Will she buy two more tickets to see the play?
A woman goes to the theatre, intending to buy two
tickets that cost $80 each. She arrives at the
theatre, opens her wallet, and discovers to her
dismay that the $160 with which she was going to
make the purchase is missing. She could use her
credit card. Will she buy the tickets?
In each scenario, what would you do?
4.44
Framing Effects
Respondents who see only one version of this problem
reach different conclusions, depending on the frame.
Most believe that the woman in the first story will go
home without seeing the show if she has lost tickets,
and most believe that she will charge tickets for the
show if she has lost money.
4.55
Framing Effects
The explanation should already be familiar - this
problem involves mental accounting and the sunk-cost
fallacy. The different frames evoke different mental
accounts, and the significance of the loss depends on
the account to which it is posted. When tickets to a
particular show are lost, it is natural to post them to
the account associated with that play. The cost
appears to have doubled and may now be more than
the experience is worth.
4.66
Framing Effects
In contrast, a loss of cash is charged to a “general
revenue” account - the theatre patron is slightly
poorer than she had thought she was, and the
question she is likely to ask herself is whether the
small reduction in her disposable wealth will change
her decision about paying for tickets.
Most respondents thought it would not.
4.77
Framing Effects
The version in which cash was lost leads to more
reasonable decisions. It is a better frame because
the loss, even if tickets were lost, is “sunk,” and sunk
costs should be ignored. History is irrelevant and the
only issue that matters is the set of options the
theatre patron has now, and their likely
consequences. Whatever she lost, the relevant fact
is that she is less wealthy than she was before she
opened her wallet.
4.88
Framing Effects
If the person who lost tickets were to ask for my
advice, this is what I would say: “Would you have
bought tickets if you had lost the equivalent amount
of cash? If yes, go ahead and buy new ones.” Broader
frames and inclusive accounts generally lead to more
rational decisions.
4.99
Framing Effects
In the next example (Larrick and Soll 2008), two
alternative frames evoke different mathematical
intuitions, and one is much superior to the other. The
paper identified a case in which passive acceptance
of a misleading frame has substantial costs and
serious policy consequences.
Most car buyers list petrol consumption as one of the
factors that determine their choice; they know that
high-mileage cars have lower operating costs. But the
frame that has traditionally been used in the United
States - miles per gallon - provides very poor
guidance to the decisions of both individuals and
policy makers. Consider two car owners who seek to
4.10
10
reduce their costs:
Framing Effects
Adam switches from a gas-guzzler of 12 mpg to a
slightly less voracious guzzler that runs at 14 mpg.
The environmentally virtuous Beth switches from a
30 mpg car to one that runs at 40 mpg.
Suppose both drivers travel equal distances over a
year (say 10,000 miles). Who will save more fuel by
switching?
4.11
11
Framing Effects
You almost certainly share the widespread intuition that Beth's
action is more significant than Adam's: she reduced mpg by 10
miles rather than 2, and by a third (from 30 to 40) rather than a
sixth (from 12 to 14). If the two car owners both drive 10,000
miles, Adam will reduce his consumption from a scandalous 833
gallons to a still shocking 714 gallons, for a saving of 119 gallons.
Beth's use of fuel will drop from 333 gallons to 250, saving only
83 gallons. The mpg frame is wrong, and it should be replaced by
the gallons-per-mile frame (or litres-per-100 kilometres, which is
used in most other countries). As Larrick and Soll (2008) point
out, the misleading intuitions fostered by the mpg frame are likely
to mislead policy makers as well as car buyers.
Hyundai and Kia settle US mileage claims - FT - 3 Nov 2014
Groups hit with $300m penalties for overstating fuel economy.
The businesses will pay $100m, the largest civil penalty in the
history of the US Clean Air Act and will forfeit greenhouse gas
4.12
12
emission credits with an estimated value of more than $200m.
Framing Effects
A directive about organ donation in case of
accidental death is noted on an individual's driver
license in many countries. The formulation of that
directive is another case in which one frame is
clearly superior to the other.
Few people would argue that the decision of whether
or not to donate one's organs is unimportant, but
there is strong evidence that most people make their
choice thoughtlessly. The evidence comes from a
comparison of the rate of organ donation in European
countries, which reveals startling differences
between
neighbouring
and
culturally
similar
countries.
4.13
13
Framing Effects
Johnson and Goldstein (2003) noted that the rate of
organ donation was close to 100% in Austria but only
12% in Germany, 86% in Sweden but only 4% in
Denmark.
4.14
14
Framing Effects
These enormous differences are a framing effect, which
is caused by the format of the critical question. The highdonation countries have an opt out form, where individuals
who wish not to donate must check an appropriate box.
Unless they take this simple action, they are considered
willing donors.
The low-contribution countries have an opt-in form: you
must check a box to become a donor. That is all. The best
single predictor of check a box to become a donor. That is
all.
The best single predictor of whether or not people will
donate their organs is the designation of the default
4.15
15
option that will be adopted without having to check a box.
Framing Effects
People will check the box if they have already
decided what they wish to do. If they are
unprepared for the question, they have to make the
effort of thinking whether they want to check the
box.
I imagine an organ donation form in which people are
required to solve a mathematical problem in the box
that corresponds to their decision. One of the boxes
contains the problem 2 + 2 = ?4 The problem in the
491 The rate of donations
other box is 13 × 37 = ???
would surely be swayed.
4.16
16
Framing Effects
When the role of formulation is acknowledged, a
policy question arises: Which formulation should be
adopted? In this case, the answer is straight
forward. If you believe that a large supply of
donated organs is good for society, you will not be
neutral between a formulation that yields almost
100% donations and another formulation that elicits
donations from 4% of drivers.
4.17
17
Framing Effects Reference Point
People’s trading decisions are affected by reference
points, which act as performance benchmarks.
Suppose you are asked the question:
Primus owns 100 shares of an asset, originally bought
at 100. Secunda owns 100 shares of the same asset,
originally bought at 200. The price of the share was
160 yesterday and it is 150 today.
Who is more upset?
It is the initial price, which determines how the
stock is doing.
4.18
18
Framing Effects Reference Point
A consequence of this is the disposition effect: an
investor who needs cash and owns two stocks is much
more likely to sell the stock whose price has gone up;
see Odean (1998a).
4.19
19
Framing Effects - The
Disposition Effect
This discussion closely follows that of Kahneman
(2011). A mistake that afflicts individual investors
when they sell stocks from their portfolio:
4.20
20
Framing Effects - The
Disposition Effect
You need money to cover the costs of your
daughter’s wedding and will have to sell some stock.
You remember the price at which you bought each
stock and can identify it as a “winner,” currently
worth more than you paid for it, or as a loser.
Among the stocks you own, Blueberry Tiles is a
winner; if you sell it today you will have achieved a
gain of $5,000. You hold an equal investment in
Tiffany Motors, which is currently worth $5,000 less
than you paid for it. The value of both stocks has
been stable in recent weeks. Which are you more
likely to sell?
What would you do?
4.21
21
Framing Effects - The
Disposition Effect
A plausible way to formulate the choice is this: “I
could close the Blueberry Tiles account and score a
success for my record as an investor. Alternatively, I
could close the Tiffany Motors account and add a
failure to my record. Which would I rather do?”
If the problem is framed as a choice between giving
yourself pleasure and causing yourself pain, you will
certainly sell Blueberry Tiles and enjoy your
investment prowess. As might be expected, finance
research has documented a massive preference for
selling winners rather than losers — a bias that has
4.22
22
been given an opaque label: the disposition effect.
Framing Effects - The
Disposition Effect
The disposition effect is an instance of narrow
framing. The investor has set up an account for each
share that she bought, and she wants to close every
account as a gain. A rational agent would have a
comprehensive view of the portfolio and sell the
stock that is least likely to do well in the future,
without considering whether it is a winner or a loser.
4.23
23
Framing Effects Reference Point
Selling losers and buying winners is referred to as a
momentum investment strategy (Hong and Stein,
1998).
It is believed to outperform the contrarian
investment strategy, that is selling winners and
buying losers.
Yet, investors will be “disposed” to sell winners too
soon and hold losers too long. Shefrin and Statman
(1985) accordingly labeled this the disposition
effect.
4.24
24
Review
It is remarkably difficult to consistently outperform
passive index returns with active strategies for trading and
investing. A review by Barber and Odean (2011) found that
individual investors routinely underperform relevant
benchmarks. This is due in part to biases in perception and
decision-making.
For example, investors tend to overweight recent
performance, allowing that to colour subsequent decisions.
Investors also tend to hold losing trades while disposing of
winners, creating negatively skewed tails of returns. They
commonly engage in strategies that bring pleasure and avoid
those that are associated with pain. That turns out to be
unhelpful when a prompt taking of losses is a prudent
4.25
25
course of action.
Review
Interestingly, the authors also found that individual
investors suffer from a lack of diversification in their
portfolios – a failure to generate a rich array of
different trading ideas.
Investors also trade quite actively on average, with
returns notably hurt by transaction costs. Indeed,
evidence suggests that active trading actually
diminishes financial returns. Summarising this evidence,
Barber and Odean express wonder as to “why investors
trade so much and to their detriment” (p. 15).
The Greatest Psychological Hurdle To Trading And
Investment Performance - Forbes - 12 April 2015
4.26
26
Review
Barber and Odean (2011) provide an overview of research on the
stock trading behaviour of individual investors. This research
documents that individual investors
1
underperform standard benchmarks (e.g., a low cost index
fund),
2
sell winning investments while holding losing investments (the
“disposition effect”),
3
are heavily influenced by limited attention and past return
performance in their purchase decisions,
4
engage in naïve reinforcement learning by repeating past
behaviours that coincided with pleasure while avoiding past
behaviours that generated pain
5
tend to hold undiversified stock portfolios. These behaviours
deleteriously affect the financial well being of individual
investors.
4.27
27
Framing Effects Pervasiveness
Research shows the pervasiveness of framing
effects: two logically equivalent statements of a
problem lead decision-makers to choose different
options.
4.28
28
Framing Effects Pervasiveness
Framing effects typically involve differing frames
whose logical equivalence is neither totally
transparent nor terribly obscure, and the ways in
which decisions are influenced is typically
predictable by the features emphasized by the
frames.
The most predictable influences of framing on choice
relate to loss aversion and diminishing sensitivity, as
outlined above. Because losses resonate with people
more than gains, a frame that highlights the losses
associated with a choice, makes that choice less
4.29
29
attractive.
Framing Effects Pervasiveness
Similarly, a frame that exploits diminishing
sensitivity by making losses appear small relative to
the scales involved makes that choice more
attractive (£ or £,000).
Kahneman and Tversky (1979) introduced framing by
means of the observation that a reference point may
shift in such a way that a gain appears to be a loss or
a loss appears to be a gain.
4.30
30
Framing Effects Pervasiveness
Verbal labels may make a reference point salient, for
instance, the content of meat products may be
framed either as P% fat-free (making 0% fat-free
the reference point) or (100-P)% fat (making 100%
fat the reference point). P% fat-free will then
appear to be a gain and be more positively evaluated
than (100-P)% fat which appears to be a loss.
Dehydration
4.31
31
Framing Effects Pervasiveness
Levin and Gaeth (1988) found that whether fat
content of meat was described as percentage fat or
percentage fat-free even affected the taste of the
meat.
4.32
32
Framing Effects Pervasiveness
Tversky and Kahneman (1986, p. S254-5) give the
following example of framing effects, taken from a
study of medical decisions by McNeil et al. (1982):
4.33
33
Framing Effects Pervasiveness
Respondents were given statistical information about
the outcomes of two treatments of lung cancer. The
same statistics were presented to some respondents
in terms of mortality rates and to others in terms of
survival rates. The respondents then indicated their
preferred treatment. The information was presented
exactly as follows.
4.34
34
Framing Effects Pervasiveness
Problem (Survival frame)
Surgery: Of 100 people having surgery 90 live
through the post-operative period, 68 are alive at
the end of the first year and 34 are alive at the end
of five years.
Radiation Therapy: Of 100 people having radiation
therapy all live through the treatment, 77 are alive
at the end of one year and 22 are alive at the end of
five years.
Please note down the key figures.
4.35
35
Framing Effects Pervasiveness
Problem (Mortality frame)
Surgery: Of 100 people having surgery 10 die during
surgery or the post-operative period, 32 die by the
end of the first year and 66 die by the end of five
years.
Radiation Therapy: Of 100 people having radiation
therapy, none die during treatment, 23 die by the
end of one year and 78 die by the end of five years.
Please note down the key figures.
4.36
36
Framing Effects Pervasiveness
Survival
Mortality
Surgery Radiation Surgery Radiation
Initial
After treatment
100
90
100
100
100
100-90
100
100-100
Year 1
68
77
100-68
100-77
Year 5
34
22
100-34
100-22
4.37
37
Framing Effects Pervasiveness
Survival
Mortality
Surgery Radiation Surgery Radiation
Initial
After treatment
100
90
100
100
100
10
100
0
Year 1
68
77
32
23
Year 5
34
22
66
78
4.38
38
Framing Effects Pervasiveness
The inconsequential difference in formulation
produced a marked effect.
The overall percentage of respondents who favoured
radiation therapy rose from 18% in the survival
frame (n = 247) to 44% in the mortality frame
(n = 336).
The advantage of radiation therapy over surgery
evidently looms larger when stated as a reduction of
the risk of immediate death from 10% to 0% rather
than as an increase from 90% to 100% in the rate of
4.39
39
survival.
Framing Effects Pervasiveness
The framing effect was not smaller for experienced
physicians or for statistically sophisticated business
students than for a group of clinic patients.
This question is hypothetical, and real stakes might
change the level of care that subjects give to the
problem.
Controlled experiments of the issues above would be
problematic.
4.40
40
Framing Effects Pervasiveness
But the fact that experienced physicians make the
same mistakes suggests that similar patterns might
play out in the real world.
Similar framing effects were found in choices over
lotteries with small monetary stakes.
More generally, it would be wrong to think that
framing effects only matter when stakes are small,
when the framing of the choices obscures the
appropriate choice in an exceedingly subtle way, or
when the decision context is hypothetical or noneconomic.
4.41
41
Framing Effects Pervasiveness
Tversky and Kahneman (1986, S251-278) cite some
important real-world examples of framing effects.
As an illustration they approached respondents in a
telephone interview who evaluated the fairness of
the action described in the following vignette, which
was presented in two versions that differed only in
the bracketed clauses.
4.42
42
Framing Effects Pervasiveness
A company is making a small profit. It is located in a
community experiencing a recession with substantial
unemployment [but no inflation]. The company
decides to [decrease wages and salaries 7%] this
year.
Is this fair?
4.43
43
Framing Effects Pervasiveness
A company is making a small profit. It is located in a
community experiencing a recession with substantial
unemployment [and inflation of 12%]. The company
decides to [increase salaries only 5%] this year.
Is this fair?
4.44
44
Framing Effects Pervasiveness
A company is making a small profit. It is located in a
community experiencing a recession with substantial
unemployment [but no inflation]. The company
decides to [decrease wages and salaries 7%] this
year.
A company is making a small profit. It is located in a
community experiencing a recession with substantial
unemployment [and inflation of 12%]. The company
decides to [increase salaries only 5%] this year.
4.45
45
Framing Effects Pervasiveness
Although the loss of real income is very similar in the
two versions, the proportion of respondents who
judged the action of the company "unfair" or "very
unfair" was 62% for a nominal reduction (first case)
but only 22% for a nominal increase (second case).
4.46
46
Framing Effects Compartmentalization
People often fail to take into account the joint
effect of their decisions. Suppose you are asked the
question:
You face two concurrent decisions. Examine both
decisions and state the options you prefer for each
decision (note your choice for both A and B).
Decision A: choose between a sure gain of 2,400 and
a 25% chance of a gain of 10,000 (75% for no gain).
Record your choices
Decision B: choose between a sure loss of 7,500 and
4.47
47
a 75% chance of a loss of 10,000 (25% for no loss).
Framing Effects Compartmentalization
In accord with loss aversion, most people tend to
choose the sure gain in A and the gamble in B. Now,
consider the following question:
Choose between a
25% chance to win 2,400 and a 75% chance to lose
7,600
versus a
25% chance to win 2,500 and a 75% chance to lose
7,500.
Record your choice
There is no doubt about the right choice: the second
4.48
48
option dominates the first one.
Framing Effects Compartmentalization
However, note that the pair chosen in the first
question amounts to the inferior option, while the
pair rejected is equivalent to the dominating choice
in the A/B problem.
As detailed in the following slides.
People find it easier to deal with decisions one at a
time and tend to forget the overall picture.
4.49
49
Framing Effects Compartmentalization
In case you missed the link, most people tend to
choose the sure gain in A and the gamble in B.
Decision A: sure gain of 2,400
Decision B: 75% chance of a loss of 10,000
(So 2,400 plus either 0 at 25% or -10,000 at 75%.
That is 2,400 at 25% or (2,400-10,000) at 75%.)
That is 25% chance to win 2,400 and a 75% chance
to lose 7,600 . The first combined option.
4.50
50
Framing Effects Compartmentalization
In case you missed the link, most people tend to
reject the gamble in A and the sure loss in B.
Decision A: 25% chance of a gain of 10,000
Decision B: sure loss of 7,500
(So -7,500 plus either 10,000 at 25% or 0 at 75%.
That is 2,500 at 25% or (0-7,500) at 75%.)
That is 25% chance to win 2,500 and a 75% chance
to lose 7,500. The second combined option.
4.51
51
Framing Effects Compartmentalization
A common effect is the use of a “mental accounting”
strategy by which people classify their savings (or
expenses) in different segments and deal with them
in different ways;
for instance, a windfall rise in income rarely finds its
way in the (mentally separated category of)
retirement savings or health insurance.
4.52
52
Framing Effects Compartmentalization
Mental accounting refers to how people categorize
and evaluate financial outcomes (Henderson and
Peterson, 1992). Shefrin and Thaler (1988) assume
that people categorize wealth in three mental
accounts: current income, current wealth and future
income. It is further more assumed that the
propensity to consume is greatest from the current
income account and smallest from the future-income
account.
4.53
53
Framing Effects
Framing refers to the way our decisions are affected
by the way information is presented. For instance,
framing can influence whether we see a glass as half
empty or half full. The same glass framed different
ways can be perceived differently depending on the
context. In the strip, Dogbert and his client describe
as "dumb" those shoppers who think something
labelled as "50 percent off" must be a bargain. Yet
the client considers himself a "genius" when he falls
victim to the same bias. Cartoon (Kramer 2014)
Framing shows up again in the strip when Dilbert's
boss frames Dilbert's lack of a salary raise relative to
the alternative of being attacked by bears, which
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54
Dilbert finds compelling. Cartoon (Kramer 2014)
Framing Effects - Avoidance
Hammond et al., 2006
1. Don't automatically accept the initial frame,
whether it was formulated by you or by someone
else. Always try to reframe the problem in various
ways. Look for distortions caused by the frames.
2. Try posing problems in a neutral, redundant way
that combines gains and losses or embraces
different reference points. For example: Would
you accept a fifty-fifty chance of either losing
$300, resulting in a bank balance of $1,700, or
winning $500, resulting in a bank balance of
$2,500?
4.55
55
Framing Effects - Avoidance
3. Think hard throughout your decision-making
process about the framing of the problem. At
points throughout the process, particularly near
the end, ask yourself how your thinking might
change if the framing changed.
4. When others recommend decisions, examine the
way they framed the problem. Challenge them
with different frames.
4.56
56
A “Real” World Application
In his booklet (Lynn 2010) provides instruction for
servers’ in the psychology of tipping as well as specific
techniques that can be used to earn larger tips.
All the suggested techniques have been scientifically
tested and the evidence of their effectiveness is
described along with the techniques. Using even a few of
these techniques should increase servers' tips by 10% to
30%.
As an aside
Does Weather Actually Affect Tipping? An Empirical
No!
Analysis of Time-Series Data
Sean Masaki Flynn And Adam Eric Greenberg
Journal of Applied Social Psychology
Volume 42, Issue 3, pages 702–716, March 2012
DOI: 10.1111/j.1559-1816.2011.00813.x
4.57
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A “Real” World Application
What’s in it for the employer?
Managers might expect
1
2
3
Increased sales
Greater Customer Satisfaction
Lower labour costs due to reduced
server turnover
4.58
58
A “Real” World Application
The methods
Tipping Expert Lynn 2010
1. Wear Something Unusual
2. Introduces Yourself By Name
3. Sell, Sell, Sell
– increased sales means increased tips
4. Crouch Next To The Table (crouch – bend down)
5. Touch Your Customers
6. Entertain Your Customers
7. Repeat Customers’ Orders
8. Call Your Customers By Name
9. Draw On The Bill ()
10. Use Credit Card Insignia (On The Trays And Bill
Folders)
- as we see in the group case study 5
11. Smile
12. Write “Thank You” On The Bill
13. Forecast Good Weather
14. Give Customers Sweets (Mints)
4.59
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A “Real” World Application
Parrett (2015) looks at the effect of beauty on earnings using
restaurant tipping data. Customers were surveyed as they left a
set of five Virginia restaurants about the dining experience, their
server, and themselves, including about their tip and their
server’s beauty and productivity. It is found that attractive
servers earn approximately $1261 more per year in tips than
unattractive servers, the primary driver of which is female
customers tipping attractive females more than unattractive
females. Potential explanations of this earnings gap are drawn
from both the labour and experimental economics literatures, the
most compelling of which is customer taste-based discrimination.
•
•
•
•
Attractive servers earn roughly $1261 more per year than
unattractive servers.
Beauty has a larger impact on female than male server
earnings.
Beauty matters more for female than male customers.
Findings attributable to customer taste-based
discrimination.
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A “Real” World Application
Azar et al. (2015) consider tipping behaviour which is analysed in a
field experiment where restaurant customers received excessive
change, either 10 or 40 Shekels (about $3 versus $12). One third
of the tables reported the extra change to the server and
returned it. Tips were higher with the higher level of extra
change. Returning the extra change was negatively correlated
with tips. The interaction between the level of extra change and
whether it was returned had no effect. Possible explanations that
tips are higher when the excessive change is not returned due to
a positive income effect or perceiving paying a tip out of
excessive change as less costly, because it is a forgone gain and
not a loss, are not supported by the data.
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A “Real” World Application
Subjects may have exhibited moral licensing and moral cleansing
effects. These effects, however, were possibly mitigated by a
self-selection effect going in the opposite direction: those who
are more generous or altruistic by their nature are more likely to
return the extra change and also more likely to tip generously.
Receiving the larger amount of extra change may result in
feelings of good mood, perceived luckiness, or individuation and
unconscious fear of being observed, which increase tips.
Interestingly, these feelings seem to remain even if the extra
change was returned.
•
•
•
•
A field experiment on how excessive change to restaurant
customers affects tipping.
Customers tipped more when the excessive change was
higher (40 versus 10 Shekels).
Tips were higher when the excessive change was not
returned.
The interaction between the extra change and whether it
4.62
62
was returned had no effect.
Persuasion by Way of Example
An additional study examined the role of gratuity
guidelines on tipping behaviour in restaurants.
When diners were finished with their meals, they were
given bills that either did or did not include calculated
examples, informing them what various percentages of
their bill would amount to.
Results indicated that parties who received the gratuity
examples left significantly higher tips than did those
receiving no examples.
Seiter et al. 2011 “Persuasion by Way of Example: Does Including Gratuity
Guidelines on Customers' Checks Affect Restaurant Tipping Behaviour?”
Journal of Applied Social Psychology 41 150-159.
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Tipping in the UK
New research in the UK has revealed that the average
tip on top of the bill is £4.18, and the average
percentage is nine per cent.
And it's no longer only for exceptional service, with 87
per cent of adults always leaving a tip - but men are
much less likely to tip in a restaurant than women.
The survey of 2,000 adults, released by restaurant
booking service OpenTable, found that 17 per cent of
men never leave a gratuity compared to just 10 per cent
of women.
The research also uncovered differences across the
country, with Londoners tipping the most, but Scots
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being the most likely to leave a tip.
Tipping in the UK
The average tipping spend in the capital comes to £5.68.
The Scots are the most likely to tip (91 per cent) - with
half of Aberdeen's diners always leaving a tip and 47 per
cent of Glaswegians still leaving a tip even if they
receive less than perfect service.
Yorkshire was revealed as the region most likely to
never leave a tip, with only 1 in 5 (20 per cent) saying
they would leave a gratuity.
Women make the most generous tippers as London leaves biggest tips - Daily Mail 13 May 2015
Scots are most likely to tip, Londoners are very generous, and half of Yorkshire
diners ask for service charges to be REMOVED: Tipping habits across the UK
revealed - Daily Mail - 13 May 2015
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Clothing Colour and Tipping
Gentlemen Patrons Give More Tips to Waitresses With
Red Clothes
Red, relative to other achromatic or chromatic colours,
led men to view women presented on a photograph as
more attractive. The effect of colour on behaviour was
tested in a tipping context.
Eleven waitresses in five restaurants were instructed to
wear the same tee shirt with different colours. The
effect of colour on tipping according to patron’s gender
was measured.
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Clothing Colour and Tipping
It was found that waitresses wearing red received more
tips but only with male patrons.
Waitresses colour had no effect on female patrons’
tipping behaviour.
The relation between red and sexual attractiveness are
used to explain the results.
Managerial interests related with clothing appearance
were discussed.
N. Guéguen and C. Jacob, 2014 “Clothing colour and tipping: gentlemen
patrons give more tips to waitresses with red clothes” Journal of
Hospitality and Tourism Research 38(2) 275-280.
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Tipping is more prevalent in
countries that are more corrupt
Using data on tipping behaviour in 32 countries
(collected from The International Guide to Tipping) and
comparing this against the Corruption Perception Index,
researchers found that rates of corruption are higher in
countries that tip more (the correlation was 0.6 where 1
would be a perfect match).
This may strike some as odd - tipping is often seen as
altruistic, whereas corruption is immoral. Yet, the
researchers propose that tipping to ensure future good
service is comparable to a bribe and this could explain
the puzzling association (Torfason et al. 2012).
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Tipping is more prevalent in
countries that are more corrupt
In a final study, researchers primed 40 US undergraduates
with either a future-oriented or past-oriented approach to
tipping. For this they used two versions of text ostensibly
taken from the Emily Post etiquette guide. After reading
that tipping should be performed as a way to ensure good
service in the future (as opposed to rewarding past good
service), the students tended to view two accounts of
political and legal bribery more leniently.
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Tipping is more prevalent in
countries that are more corrupt
"The studies reported here highlight a psychological
mechanism that may help explain the surprising
association between tipping and bribery both within and
across countries," the researchers said. They added
that the findings raise some intriguing possibilities - for
example, might encouraging people to give tips
specifically as a reward for past good service act to
reduce the tolerance of bribery in society?
Magnus Thor Torfason, Francis J. Flynn, and Daniella Kupor (2012). Here Is
a Tip: Prosocial Gratuities Are Linked to Corruption. Social Psychological
and Personality Science. Tipping is more prevalent in countries that are
more corrupt - BPS Research Digest
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Is Tipping Dead?
New York restaurateur Danny Meyer hits tipping point - FT - 15
Oct 2015
Danny Meyer, the man behind some of New Yorks best-known
restaurants such as Gramercy Tavern and The Modern, is ending
the practice of tipping across all his premises in a move that will be
watched closely by other restaurateurs.
Mr. Meyer, who also founded Shake Shack, said in an open letter on
Wednesday that he had found that the main obstacle to providing
career opportunities for his 1,800 staff at Union Square Hospitality
Group was the practice of tipping.
Shake Shack's founder is banning tips at all his restaurants - Yahoo
Finance
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Technology?
Future restaurant waiters will respond to taps instead of tips - FT 10 Sept 2015
Service has always been labour intensive but the technological
barriers to automating it are falling.
The restaurant Eatsa in San Francisco is a restaurant without
employees, to be more precise no visible ones. There is a staff of
five or six cooks assembling the bowls, but they work completely
behind the scenes. The typical customer interacts with zero Eatsa
employees on a typical visit: they order and pay via a smartphone
or tablet, then pick up their food from a cubbyhole displaying their
name. Prices are low, and initial reviews are quite good.
Mark Oleynik, Moley Robotics: The Russian scientist who wants to
replace chefs with robots
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Technology?
Why bartenders have to ignore some signals: Research
into pub communication with robot James continues -ScienceDaily -- 25 Nov 2015
A robotic bartender has to do something unusual for a machine: It
has to learn to ignore some data and focus on social signals.
Researchers recently investigated how a robotic bartender can
understand human communication and serve drinks socially
appropriately.
Ghost-in-the-Machine reveals human social signals for human–
robot interaction
Sebastian Loth, Katharina Jettka, Manuel Giuliani, Jan P. de Ruiter
Frontiers in Psychology, 2015; 6 DOI: 10.3389/fpsyg.2015.01641
Test persons put themselves in the role of
bartender robot James at the computer.
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Technology?
Dining technology use is no measure of value, Clemson
researchers find - Clemson University - 25 Sept 2015
Have you ever been dissatisfied with a restaurant
experience because the customer-service
technology you had to use to reserve a table, order
your food or pay for the meal wasn't up to par?
Researchers aren't surprised. According to their
findings, organizations often gauge the
effectiveness and value of a customer service
technology based solely on its use, which could be a
costly mistake when they decide where to invest
their technology dollars.
Dining technology use is no measure of value,
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researchers find -- ScienceDaily -- 25 Sept 2015
Restaurants Are A Mine Field
Cynical tricks restaurants use to make you spend more
revealed - Daily Mail - 18 Aug 2014
By Vincent Graff
Why that “special” on the menu is a recipe for taking
your cash: Revealed, the cynical tricks restaurants
use to make you spend more
What’s so special about a restaurant’s “daily special”?
It’s a familiar ritual. You’re sitting down, you’ve been
handed the menu and the waitress launches into a florid
description of an item that isn’t printed on the sheet
she gave you.
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Restaurants Are A Mine Field
If you’re lucky, the “special” is just that, something
delicious that the chef has whipped up from fresh
ingredients that caught his eye at the market this
morning.
But very often the special — or “chef’s recommendation”,
or “dish of the day” — is special only because it’s the
most profitable item on sale, and the restaurant knows it
will sell many more if the waitress singles it out for
attention.
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Restaurants Are A Mine Field
Restaurants also know that most diners are too shy or
embarrassed to ask for the price of the special — and,
guess what, the waitress “forgot” to mention what the
dish will cost you. The fake special is just one of the
secret weapons restaurants deploy to make us spend
more than we intend to when we go out to eat.
In fact, the tricks begin as soon as you’re handed the
menu (Poundstone 2014).
Priceless | William Poundstone | Macmillan
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Restaurants Are A Mine Field
And because we don’t know they’re doing it, they’re
nearly always successful.
For, whether we like it or not, every time we go out to
eat, the restaurants are playing mind games with us —
while we remain, mostly, innocently oblivious.
“People rarely go into restaurants knowing exactly what
they want to order or how much they want to spend,”
explains Poundstone. “And we can be influenced by all
sorts of things that we’re not aware of.”
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Restaurants Are A Mine Field
At the centre of all this is the humble menu. You might
think that the restaurant menu merely tells you what
items are available in a certain establishment.
Actually, it is a very sophisticated piece of advertising.
In fact, it’s the only piece of advertising that restaurant
owners can be certain their customers will read.
As a result, restaurants invite in “menu consultants”
whose job it is to lay out a menu that will persuade you
to spend more money than you’d expected.
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Restaurants Are A Mine Field
You may, for instance, have noticed that increasingly the
prices on menus no longer employ the pound sign — or
even any evidence of pence. Where once a steak might
have cost you “£16.00” now its price is stated as “16”.
Pound signs are disappearing from menus as quickly as
cod are vanishing from the oceans.
And not just at fashionable restaurants. There are no
pound signs at Carluccio’s, Byron, Giraffe or Cafe Rouge
either.
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Restaurants Are A Mine Field
This is not a coincidence. A study (Yang et al. 2009)
found that when, in a similar move, dollar signs were left
off a menu, sales increased by eight per cent. Why so?
$ or Dollars: Effects of Menu-price Formats on
Restaurant Checks - Cornell School of Hotel
Administration
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Restaurants Are A Mine Field
When eating out in a restaurant, consider the sounds
around you. Is there music playing? Just the gentle hum
of other people’s conversations? Maybe it’s loud and
booming, maybe it’s relatively quiet. Whatever the
acoustic atmosphere, it could be affecting how you
experience the flavour of the food and drink you’re
consuming, according to a growing body of research (Yan
and Dando R. 2015).
Simple, says Poundstone. “the more space you devote to
something on a menu, the more people pay attention to
it.”
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Restaurants Are A Mine Field
“so if you have a pound sign and the number of pence, it
takes up more space on the page — and more space in
your mental attention.”
“And obviously the restaurant does not want you to
choose your food on the basis of price.”
That’s also the reason why menus very often feature the
items and their prices centred on the page, rather than
having the prices all lined up in a tidy column on the
right-hand side. If all the prices appear neatly one
above another, says Poundstone, that just invites us to
compare one against the other — which is the last thing
the restaurant wants us to do.
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Restaurants Are A Mine Field
For that same reason, you now never see dots leading
the eye from the description of the item to the price.
Another key trick is known as “anchoring”. This is where
a restaurant places a highly expensive dish prominently
on the menu — solely in order to make the other dishes
nearby appear relatively cheap.
At Marco Pierre White’s Marco Grill in London, there’s a
35oz Tomahawk steak on sale for £70. Restaurants do
not expect to sell many of these costly “anchor” items,
says Poundstone.
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Restaurants Are A Mine Field
That is not their job — instead they are simply there to
make the other dishes look like good value.
Suddenly spending £21 on a plate of Marco’s grilled
Dorset lemon sole doesn’t seem so outlandish. A lot of
research has also gone into where we look when we first
open a menu. It’s estimated that we read a menu for 109
seconds on average.
Studies have shown that when presented with a list we
remember best the item at the very start, and the one
at the end — it’s the way our memories work.
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Restaurants Are A Mine Field
We will also turn our eyes first to the top right-hand
corner of a page in front of us, whether it be a doublepage or single-sheet menu.
So that corner, of course, is usually where the most
profitable items are placed.
Poundstone says some of the other techniques are so
commonplace, they seem unremarkable. Why might an
item on the menu have a box around it? It’s not because
it’s a dish the chef is particularly proud of, it’s because
it earns a high profit for the restaurant.
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Restaurants Are A Mine Field
Alternatively, the menu might use other methods to
draw our attention: an item in a different colour; an
accompanying illustration; a different typeface.
Spence and Piqueras-Fiszman (2014) are alert to the
techniques in play.
Wiley: The Perfect Meal: The Multisensory Science of
Food and Dining - Charles Spence, Betina PiquerasFiszman
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Restaurants Are A Mine Field
“I was in the burger restaurant Byron the other day,” he
says. “the menu is all in black and white, except for one
item, which is highlighted in bright red. And it’s their
most expensive item.”
Spence and Piqueras-Fiszman (2014) say that people are
also likely to spend more if menus — and especially wine
lists — are heavy to handle. And of course, even the
words that menus use can persuade us to splash out.
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Restaurants Are A Mine Field
At the restaurant chain Giraffe — which was bought last
year for £49 million by Tesco, a company that knows all
about parting us from our cash — the toast is “artisan
sourdough toast”, the chicken nuggets have a “sesame
crunch coating” and the salsa is “fiery red roasted
chipotle salsa”.
Meanwhile the bresaola at Jamie Oliver’s, Jamie’s
Italian, is “elegant slices of cured beef” and at West
End eaterie The Ivy, in London, there’s an “heirloom
tomato salad” and the carrots and beetroots are both
labelled “heritage”.
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Restaurants Are A Mine Field
Spence and Piqueras-Fiszman (2014) say: “there’s
research that demonstrates that if you give food a more
descriptive label, people will enjoy it more — and they’ll
also pay more for it.” One common example of this is to
attach somebody’s name to a dish. At Randall & Aubin
restaurant in London’s Soho, they serve “slow roast
Aubrey Allen pork belly”.
Few, if any, of the punters will realise who Aubrey Allen
is. For all anyone knows, it could be the name of the boy
who sweeps up the pork fat in the abattoir.
In fact, it’s the name of the butcher — based in a
Coventry business park — who supplied the meat.
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Restaurants Are A Mine Field
The “chef’s recommendation” or “dish of the day” is
special because it is the most profitable item on sale and the restaurant knows it will sell more if the waitress
singles it our for attention
“this is a classic technique,” say Spence and PiquerasFiszman (2014) . “It could be any name there at all. But
attaching the words “Aubrey Allen” makes the dish feel
like it’s more carefully chosen. It’s not just any old pork
belly. And that allows them to put a premium on it.”
If it’s any comfort, it’s not just us poor punters who are
victims of these mean tricks.
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Restaurants Are A Mine Field
Restaurateur Russell Norman is the owner of a string of
successful restaurants in London, including Polpo in
Notting Hill. He is also innocent of all the sales ploys
detailed here (except one: his menus do not use pound
signs).
“My pet hate is the use of hyperbole on menus,” he says.
“When chefs or restaurateurs describe dishes as
“delicious”, “mouth-watering” or “gorgeous”, I always
think: “How dare you! I will be the judge of that, thank
you very much.” ”
But the other day, while on holiday in New York, even he
fell victim to “anchoring”.
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Restaurants Are A Mine Field
Visiting a restaurant, he was mulling over which wine to
choose from a list which featured several bottles that
cost $2,500 (£1,500).
“And because they had so many bottles that cost so
much, I ended up buying a bottle of wine for $90 (£54).
That’s nearly double what I’d normally spend. But they’d
made it look cheap by comparison.
“I’m a restaurateur — and I was still suckered!”
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Restaurants Are A Mine Field
Rotating your plate as it is placed on the table may
improve the taste of your food, psychologists claim.
People have a subconscious preference for food that
points away from them, according to Oxford University
experts, to the extent that it can affect the flavour.
An experiment involving 12,000 people, carried out at
London’s Science Museum, suggests that most people
prefer their meal to be aligned facing away from them,
and marginally to the right.
Rotating plates: How orientation can make your food taste better | Inside the
Red
Onions,
Science
Museum Tapioca, Sugar Cane Vinegar, Peanut and
Want a tasty meal? Try rotating
your plate!Cream
Diners prefer meals facing away from
Fermented
them and pointing marginally to the right - Daily Mail - 11 May 2015
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Restaurants Are A Mine Field
The perfect orientation, the scientists discovered, is
for food to point at 3.2 degrees clockwise, a tiny
fraction to the right of the vertical axis of the plate.
The effect is so pronounced that people actually
experience an improved taste when the alignment is
correct, the psychologists claim.
Rotating plates: Online study demonstrates the importance of orientation
in the plating of food
Charles Michel, Andy T. Woods, Markus Neuhäeuser, Alberto Landgraf and
Charles Spence
Food Quality and Preference 2015
DOI: 10.1016/j.foodqual.2015.04.015
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Restaurants Are A Mine Field
Why eating off a red plate makes you less hungry: An Oxford professor's
astonishing tips on how to make food taste better - Daily Mail - 1 June 2015
Prof. Charles Spence (Oxford University) is championing the new science of
gastrophysics.
We all know that fish and chips taste best when you’re sitting on a harbour wall
looking out to sea. And most of us would agree that music and lighting affects
the overall enjoyment of a meal.
But did you realise that ordering first when dining with friends will make your
food taste better? Or that eating from a red plate is a good way to lose weight?
Or that the heavier the cutlery, the more likely you are to think your meal is
delicious?
Study Finds A Good Appetizer Could Make Your Main Course Less Enjoyable
A good or mediocre appetizer has the potential to significantly change
how the main course is enjoyed, according to one Drexel food science
professor. Jacob Lahne 2015
How ordering a starter could spoil your main meal - Daily Mail - 27 June 2015
A good appetizer could make your main course less enjoyable - ScienceDaily - 25 June 2015 4.96
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A Test of Intuition
Frederick (2005) introduces a three-item "Cognitive
Reflection Test" (CRT) as a simple measure of one
type of cognitive ability - the ability or disposition to
reflect on a question and resist reporting the first
response that comes to mind. He shows that CRT
scores are predictive of the types of choices that
feature prominently in tests of decision-making
theories, like expected utility theory and prospect
theory.
Frederick S. 2005 “Cognitive reflection and decision making” American
Economic Association 19 25-42.
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A Test of Intuition
Indeed, the relation is sometimes so strong that the
preferences themselves effectively function as
expressions of cognitive ability - an empirical fact
begging for a theoretical explanation. The author
examines the relation between CRT scores and two
important decision-making characteristics: time
preference and risk preference. The CRT scores are
then compared with other measures of cognitive
ability or cognitive “style.”
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A Test of Intuition
Despite the diversity of phenomena related to IQ,
few have attempted to understand - or even describe
- its influences on judgment and decision making.
Studies on time preference, risk preference,
probability weighting, ambiguity aversion, endowment
effects, anchoring and other widely researched
topics rarely make any reference to the possible
effects of cognitive abilities (or cognitive traits).
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A Test of Intuition
The Cognitive Reflection Test (CRT)
1.
A bat and a ball cost $1.10 in total. The bat costs $1.00
$0.05
more than the ball. How much does the ball cost ______
$0.90
cents.
2. If it takes 5 machines 5 minutes to make 5 widgets, how
long would it take 100 machines to make 100 widgets
5
______
minutes.
5
3. In a lake, there is a patch of lily pads. Every day, the patch
doubles in size. If it takes 48 days for the patch to cover
the entire lake, how long would it take for the patch to
47
cover half of the lake ______
days.
47
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A Test of Intuition
The CRT was administered to 3,428 respondents in 35 separate
studies over a 26-month period beginning in January 2003. Most
respondents were undergraduates at various universities in the
midwest and northeast of America.
The CRT scores exhibit considerable difference between men
and women and the article explores how this relates to sex
differences in time and risk preferences. The final section
addresses the interpretation of correlations between cognitive
abilities and decision-making characteristics. In short
respondents who score differently on the CRT made different
choices.
Frederick S. 2005 “Cognitive reflection and decision making” American
Economic Association 19 25-42.
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Where Should You Invest?
The Observer portfolio challenge pitted professionals Justin
Urquhart Stewart of wealth managers Seven Investment
Management, Paul Kavanagh of stockbrokers Killick and Co, and
Schroders fund manager Andy Brough against students from
John Warner School in Hoddesdon, Hertfordshire – and
Orlando.
While the professionals used their decades of investment
knowledge and traditional stock-picking methods, the cat
(Orlando) selected stocks by throwing his favourite toy mouse
on a grid of numbers allocated to different companies.
Investments: Orlando is the cat's whiskers of stock picking The Observer - Sunday 13 January 2013
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Where Should You Invest?
Each team invested a notional £5,000 in five companies from
the FTSE All-Share index at the start of the year. After every
three months, they could exchange any stocks, replacing them
with others from the index. By the end of September the
professionals had generated £497 of profit compared with
£292 managed by Orlando. But an unexpected turnaround in the
final quarter has resulted in the cat's portfolio increasing by an
average of 4.2% to end the year at £5,542.60, compared with
the professionals' £5,176.60.
Investments: Orlando Is The Cat's Whiskers Of Stock Picking
The Observer, 13 January 2013
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Its Not Just The Share Price
The fifteen years since the FTSE 100 hit its all-time high have
been a lesson in why dividends matter.
When that anniversary rolled round last week, the leading UK
stock market index was down 4.3 per cent on the 6,930.2 points
it reached as we prepared to celebrate the millennium.
Yet take into account dividends, as the FTSE 100 Total Return
index does, and investors were up 58%.
That’s not much to write home about – an average of just 3% a
year - but it’s considerably better than losing money.
THE MINOR INVESTOR: If you want to make money long-term
put your trust in dividends - the Rolling Stones of investing Daily Mail - 8 January 2015
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Where Should You Invest?
One would think that professional investors, such as mutual funds,
hedge funds and institutional managers, would be behavioural-data
investors. And indeed, the analysts within such organizations are
most often behavioural-data investors. But the further up one
goes in the organization and the larger the fund, the more like the
crowd it becomes. This is because in order to grow assets under
management, funds must attract and retain emotional investors,
which means catering to client emotions and taking on the features
of the crowd.
As the fund grows in size, it increasingly invests in those stocks
favoured by the crowd, since it is easier to attract and retain
clients by investing in stocks to which clients are emotionally
attached. A fund might also mimic the index to lock in a past alpha
or become a closet indexer to avoid style drift and tracking error.
Each of these represents a different way of catering to investor
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emotions (Howard 2013).
Where Should You Invest?
So, what may start out as a fund managed by behavioural-data
investors taking positions opposite the crowd often ends up
morphing into something that is acceptable to the crowd. As
argued by Berk and Green (2004), such behaviour is rational on
the part of the fund, as revenues are based on assets under
management. Consistent with this argument, others have found
that returns decline as funds grow large (Howard 2013).
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Where Should You Invest?
In three studies on predicting the stock market, Ortmann et al.
(2008) reported that recognition-based portfolios (the set of
most-recognized options), on average, outperformed managed
funds such as the Fidelity Growth Fund, the market (Dow or
Dax), chance portfolios, and stock experts. In contrast, Boyd
(2001) found no such advantage when he used college students’
recognition of stocks rather than that of the general public. It
is imperative to understand why and under what conditions this
simple heuristic can survive in financial markets without making
a systematic market analysis. This remains an open question.
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Next Week
Asset Pricing
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