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Decision-Making
Your Frame of Reference Influences Your Decision Making
All decisions have reference points that influence our judgment.
Posted June 28, 2021 Reviewed by Kaja Perina
Is the latest iPhone a good value? Should you accept that promotion you’ve been offered? Should you pay to have someone come and fix your leaky toilet or fix it yourself? Although we might delude ourselves into believing there’s an objective way to approach these decisions (and many others), such objectivity isn’t truly possible. The reason for this is that almost all decisions we make in our lives are influenced by the context in which they are made – the frame of reference for that decision.
Our frames of reference are extremely important for making decisions that are consistent with our values, aligned with our preferences, and relevant to our past experiences. They are helpful in making decisions that work for us, but that also means they add subjectivity to those decisions. This isn’t necessarily a bad thing, unless we forget about that subjectivity and erroneously conclude that others are or should be applying the same frames of reference as we are. That’s when we run into problems.
Frames of Reference
A frame of reference is the context within which we interpret the world, evaluate various decision options, and reach conclusions. Although it might sound rather simplistic, we can parse the frame of reference into two key elements when it comes to decision making.
The first is the decision context. This refers to the specifics of the decision situation, elements that would be exactly the same no matter who was in that particular decision situation. For example, in the question I posed above about the latest iPhone, in the year 2021, the version of the iPhone under consideration and the absolute cost of that phone would be the same no matter who was making the decision.
The second element is the psychological context. This refers to the decision maker’s interpretations of the decision situation, which are influenced by the person’s attitudes, beliefs, and prior experiences. In the iPhone example, this would relate to factors such as the decision maker’s attitudes about iPhones (and smart phones in general), experience with them, knowledge of the latest version’s capabilities, the length of time since last phone purchase, and current financial situation[1].
So, while the question itself has only two options (yes or no), how people derive whichever conclusion they reach may be premised on different justifications. For example, an Android user with a very negative attitude about iPhones might automatically conclude the answer is no, but so might an iPhone user who recently bought a phone and finds the price of the new iPhone to be too steep.
Decision making ends up being a function of the decision context and the psychological context. But changing elements of the decision frame of reference can also alter the psychological frame of reference. For example, someone deciding on the iPhone question might reach one conclusion in 2010 but a different conclusion in 2021.
Smets (2021) used prior research to provide a terrific example of how changing the decision context can elicit a different psychological context when he discussed the issue of mental accounting:
In the first version, as you arrive at the theatre, you notice you have lost $10: will you still pay $10 for a ticket? 88% of their participants said they would do so. In the second version, you have bought the ticket in advance, but upon arriving you notice you lost it. In this case, only 46% of their respondents would buy a new ticket.
The actual loss is exactly the same in both cases, yet the reaction is very different. We act as if we have multiple budgets, alongside unallocated cash. In the second case, we already depleted the theatre budget, and so we may not be able to justify buying a second ticket; in the first case, we have lost unallocated cash, so we would still only be buying the one ticket. (para. 3-4)
The above illustrates the importance of considering both the decision and the psychological context when it comes to understanding the decisions we make and why we make them[2]. It should also illustrate the dangers of evaluating the decisions made by other people. It can be quite easy to make accusations about others’ decision making if we fail to consider that person’s frame of reference.
Frames of Reference and Biases
The decision and psychological context form the frame of reference within which we make decisions, with the psychological context being influenced by our beliefs, attitudes, preferences, and past experiences. Our biases represent predispositions to favor a given conclusion over other conclusions and might be considered the leanings, priorities, and inclinations that influence our decisions[3]. Biases, therefore, contribute to the psychological context of the frame of reference. The stronger the biases at play, the more likely those biases will dictate the frame of reference for that decision[4].
In returning to our iPhone example, an Android user may possess a bias toward Android phones and a bias against iPhones. As such, these biases influence the psychological context in which the Android user would evaluate whether the iPhone was a good value. Those with weaker biases will be more likely to apply a frame of reference that includes other factors (e.g., the new iPhone’s capabilities, cost), but those with stronger biases will be more likely to conclude that no iPhone would ever be a good value.
Strongly held biases likely explain the application of more consistent frames of reference for making similar decisions even when other elements of the decision context vary. For example, people who are strongly biased to follow the rules of the road may very seldom find themselves in situations where they will conclude that exceeding the speed limit is warranted[5]. In such situations, only when one or more other situational factors are strong enough will the biased conclusion be overridden.
In other situations, however, our frames of reference may be less impacted by a strongly held bias and more impacted by aspects of the psychological context that are unique to that decision context. In terms of the iPhone example, this might mean being less impacted by your bias toward or against the iPhone and more impacted by such factors as how old your current smart phone is, whether you’re satisfied with the brand of phone you currently have, and whether the cost of the new iPhone is in line with your expectations for how much a smart phone should cost[6]. As such, these and other factors could create a frame of reference that leads you to either conclusion.
So What?
Because frames of reference play a large role in our decision making, recognizing how changes to a frame of reference can alter the conclusions we reach can help us better understand not only our own decision making but also the decision making of others. It is not uncommon, for example, for us to apply our own frame of reference when assessing the decisions made by others.
This is not necessarily problematic, but it can lead to a judgment about others’ behavior that is devoid of nuance, erroneous, or misleading. We see this, for example, today when people apply a modern frame of reference to evaluate the decisions made by prior generations or rush to judge someone based on incomplete or ambiguous information. In the former example, we apply a frame of reference that may be far removed from the frame of reference that would have been most reasonable to apply. In the latter example, the frame of reference we apply is often incomplete, relying on assumptions we make about that situation, which may cause us to ignore some of the currently unknown pieces of information that could alter the frame of reference.
In both cases, perhaps it would be wise to be more discerning regarding the frame of reference we are applying and recognize that there may be alternative explanations that could be reasonable.
Footnotes
[1] This was an issue especially when cell phone providers switched from free phones with a 2-year contract to full-priced phones with contract. This led a lot of smart phone users to put off getting a new phone for as long as they could due to what was perceived as a sharp increase in the price (going from free or next to free to hundreds of dollars).
[2] This also relates quote strongly to the piece I wrote on low probability outcomes.
[4] This was also an issue I addressed when it comes to the challenge of following the science.
[5] This does not mean such situations are nonexistent. Rather, there must be a strong motivation necessary to override the bias.
[6] This is not an exhaustive list.
