(In the scheweser’s QBank- one of the section test question-Question ID#: 47503) Why the investor(Minter)'s assumption about that financial publications offer superior advice is a symptom of frame dependence? My head just couldn’t get around with it. Frame dependency, to me, sounds more like investor would make different decision under certain circumstances. The dependency on financial publication sounds more like a representativeness to me, a judgement based on stereotype. Frame dependency was clear to me while reading but now it becomes much more vague now when put it into the test version. Someone could help to clarify?
For example, if there is an article about hedge fund return, and this article was publised in Alpha, and you saw the same article in New York Post (different frame), average investor would think the article publised in Alpha is a better article. Make sense? Hope this helps.
That is a tough question. CFAI didn’t directly address that issue. Maybe it relates to the Illusion of Knowledge. He (incorrectly) believes that he has a level of expertise because he reads financial publications. He frames resulting decisions so that he believes he acts on expertise, rather than opinion. I’m just taking a stab at it. I have no illusion of knowledge on this one.
WS is correct. You are framing the information based on where you saw the info. Lets say the Wall Street Journal says we are in a recession and the New York Post says we are NOT in a recession. Most people would put more weight on the opinion that the Wall Street Journal has because it is more of a financial publication. Similarly, individuals may put more weight on an article about how to decrease your credit card debt if they read it in Money Magazine vs reading it in People Magazine.
Exactly - frame dependency is all about making investment decisions based on the context of information recieved (the medium is the message) whereas frame independency based decisions are purely economic in form.
Thanks everyone. ws is correct. I found a note under schweser’s flash cards. under session 3/reading8/los b, it talks about the impact of self-control on investor behavior, which clarify this concept. "Self-control (i.e., controlling one’s emotions) is related to frame dependence. This implies that individuals’ reactions to information are affected by the framework within which the information is received (e.g., the media carrying the information and individual’s circumstances). "
should give jg1996business and strikershank credits too. they explained that concept very well!
Almost none of the above sounds like the Kahneman/Tversky framing problem in prospect theory and behavioral finance: http://en.wikipedia.org/wiki/Framing_(economics), http://en.wikipedia.org/wiki/Framing_(social_sciences)#Absolute_and_relative_influences . I recall wondering whether the cfai reading was running down the wrong track with this bias, and share jaCaL2’s bewilderment. The cfai interpretation (“medium is the message”, etc.) sounds more like the social sciences use of framing (“Framing defines the packaging of an element of rhetoric in such a way as to encourage certain interpretations and to discourage others.”); see intro from http://en.wikipedia.org/wiki/Framing_(social_sciences) . Though perhaps a reasonable definition of “framing effect”, it’s entirely different from the usual behavioral finance use from K/T. Caveat candidate.
DarienHacker, that’s what I was confused doing the test while still remembering the original meaning of frame dependency. It seems that the test provider has broaden the concept. well… whatever, i just need to remember this for the sake of exam.
DarienH - did you just use Wikipedia as your source? I urge you to find a much more reliable information well as although good in general for general information, i wouldn’t trust wikipedia for anything where you have to be right (such as the CFA exam) as the postings to wikipedia aren’t always accurate or ‘framed’ properly.
SS – I took a graduate course in public policy using the K/T “blue book” (http://www.amazon.com/Judgment-under-Uncertainty-Heuristics-Biases/dp/0521284147/ref=pd_bbs_sr_2?ie=UTF8&s=books&qid=1201040470&sr=8-2) as a source. (These are the Nobel prize winners who basically invented the field of behavioral finance, terming it prospect theory.) If you dig in there you’ll see a characterization of the framing effect that agrees with my account. I don’t have any formal background in the social-sciences version of the framing effect that wikipedia cites. (Personally I think the cfai materials could use a rework.) …and, all that said, of course you should memorize whatever cfai says as gospel, because that’s what matters come June.