SUSIE GHARIB: When it comes to making financial choices, how the choice is presented can make a big impact on your decision. That presentation is a psychological technique called framing. In tonight’s segment of “Your Mind and Your Money,” produced in association with Kiplinger’s Personal Finance, Dan Grech looks at why a little framing can make a big difference.
DAN GRECH, NIGHTLY BUSINESS REPORT CORRESPONDENT: It’s no secret that we see the same thing from different perspectives. Take this glass: is it half full or half empty? Or this slab of beef: is it 75 percent lean or 25 percent fat? What can make the difference is how the picture is presented – – or framed. This kind of framing can affect our financial decisions as well. Take Dr. Diana Mimms. She’s a psychiatrist in Tampa, Florida. Her passion is finding a good sale.
DR. DIANA MIMMS, PSYCHIATRIST: When I shop, I look for a bargain. In fact, I’ve been doing that since the ’80s. I learned when I finished residency and started making money that my money would go further if I got a good bargain.
GRECH: Dr. Mimms is also on the lookout for bargains in the stock market. She thought she found a good one when Berkshire Hathaway announced its first ever stock split. One share of Berkshire’s “B” class stock instantly became 50 shares. That cut the price of a share from $3,500 to just $70.
MIMMS: I thought, hallelujah! It’s time to buy!
GRECH: But in reality, Berkshire Hathaway wasn’t giving anything away and it never said that it was. It was just dividing the company’s ownership pie into more pieces. There was no change in value. So, could the stock split have given some people the wrong idea? University of Miami marketing Professor Howard Marmorstein thinks so.
HOWARD MARMORSTEIN, ASSOC. PROFESSOR, UNIVERSITY OF MIAMI: Individuals may not appreciate that a 16-inch pizza is the same whether it’s cut into eight or 16 slices.
GRECH: The psychological technique of framing can be done in several ways. One is by changing the scope of what you see. Take this small frame. It lets you see me as the Mona Lisa, but move onto a bigger frame, you get to experience the real Dan Grech in his full life-size glory. Cleotilde Gonzalez works at Carnegie Mellon University. She says graphs and charts work the same way. The picture you see can give you the right — or the wrong — idea.
CLEOTILDE GONZALEZ, ASSOC. PROFESSOR, CARNEGIE MELLON UNIV.: Graphs and charts can help you make good decisions sometimes, but many times those same graphs can lead you to make really wrong decisions. And that depends on your perceptions of what the graphs are representing, how the elements of the graph interact and also what you are not seeing.
GRECH: Case in point: this is a chart of the stock market’s recent performance. It might give you a positive view of investing in stocks. But expand the picture to include the previous year. It gives a very different impression, doesn’t it? Financial marketers also know that most people have a basic impulse to avoid taking risks. So, financial ads often appeal to that impulse by using framing, with words and pictures that make their products seem less risky. So when you’re making a financial decision, remember: search for the bigger picture. If you’re not careful, you could be framed. Dan Grech, NIGHTLY BUSINESS REPORT, Miami.