Framing effect (price vs. return) on risk-taking behavior

Abstract

This paper investigates whether the framing of investment options, specifically presenting choices in term of prices versus returns, affects risk-taking behavior among individual investors. To examine this question, an experiment was conducted in which participants were randomly assigned to one of the two treatment groups. One group received investment scenarios framed in prices, while the other group received identical scenarios framed in returns. Each participant answered eight investment questions, allocating hypothetical capital between a higher-risk and lower-risk stock in each investment question. Risk-taking behavior was measured as the average amount allocated to the high-risk stock across all eight investment questions. The analysis involved an independent samples t-test, multiple regression models (including relevant control variables), a panel data regression and a multivariate multiple linear regression. Across all statistical methods, the direction of the framing effect was consistent. Participants exposed to price framing tended to allocate more to the high-risk stock than those exposed to return framing. However, in none of the analyses did this difference reach statistical significance at the conventional 0.05 p-value threshold. Therefore, the results of this paper indicate that the price versus return framing does not have a significant effect on risk-taking behavior, in this experimental context.