A STUDY ON THE IMPACT OF
FRAMING EFFECTS ON FINANCIAL
DECISIONS
UNDER THE GUIDANCE OF VIJAYA LAKSHMI B
MRS.C.M.LEKSHMI, 310623631113
B.TECH(IT)., MBA II Year MBA – B
ASSISTANT PROFESSOR 2023-2025
INTRODUCTION
o Financial decision-making is a complex and multifaceted process, influenced by a wide range of
psychological, social, and economic factors.
o One of the most significant factors affecting financial decision-making is the way in which
information is presented, or "framed."
o Framing effects refer to the phenomenon where identical information, presented in different ways,
leads to distinct decisions
o The study of framing effects has its roots in the field of behavioral economics, which seeks to
understand how psychological and social factors influence economic decisions.
o Behavioral economists have long recognized that individuals do not always make rational, self-
interested decisions, but are instead influenced by a range of cognitive biases and heuristics.
COMPANY PROFILE
o Vy Systems is a Global Technology consulting, Solutions, and Managed Technology Services
company. The Company is founded and managed by a team of professionals having more than
two+ decades of global experience in the business of Technology Consulting and Services.
o Vy Systems is part of VY ventures and is in the business of Technology consulting, Solutions and
Managed Services for our customers at global locations since 2002.
o Vy Systems is currently run by efficient management team comprising of leaders who started with
Vy as a fresher from college and got elevated to leadership roles as well as eminent individuals
who joined Vy’s team after successful stints with global organizations.
o Vy Systems is an accelerating global IT firm serving customers over 2 decades with Tech
Consulting, Talent Sourcing, Software Training, IT Management Services and much more.
VY
SYSTEMS
VY VOXEL
VY
VY BOG
PLATINUM
VY
VENTURES
VY LABS CODENATIVES
VY
VYINGER VY TCDC
VENTURES
FELKAM FELKAM
COMMERCE
PROBLEM STATEMENT
o This study explore the extent to
which framing effects alter financial
choices.
o The Framing effect can cause
investors, consumers, and
policymakers to make suboptimal
financial choices, affecting
investment strategies, savings
behavior, and risk assessment.
LITERATURE REVIEW
o Framing effects, first introduced by Kahneman and Tversky (1979) through Prospect Theory, play
a significant role in financial decision-making by influencing how individuals perceive risk and
rewards based on how information is presented.
o Research has consistently shown that individuals respond differently to financial choices
depending on whether they are framed in terms of gains or losses. Tversky and Kahneman (1981)
demonstrated that people tend to be risk-averse when outcomes are framed as gains but exhibit
risk-seeking behavior when the same outcomes are framed as losses.
o This tendency challenges the traditional economic assumption of rational decision-making and
highlights the influence of cognitive biases on financial choices.
o Studies have found that framing effects impact stock market behavior, asset allocation, and risk
tolerance. Thaler (1985) and Odean (1998) observed that investors are more likely to hold onto
losing stocks longer than necessary due to the disposition effect, a behavior linked to framing and
loss aversion.
o When investment portfolios are framed as potential losses rather than fluctuations in value,
investors tend to avoid selling assets at a loss, which may result in suboptimal financial outcomes.
o Similarly, Benartzi and Thaler (1999) found that retirement savings decisions are heavily
influenced by how returns are framed, with individuals preferring safer investment options when
returns are presented in a loss-oriented manner.
o Existing literature confirms that framing effects play a crucial role in financial decision-
making, influencing investments, savings, spending, and insurance choices.
PRIMARY OBJECTIVE
o A Study on impact of Framing effects on Financial decisions such as investment decisions, savings
behaviour and risk assessment.
SECONDARY OBJECTIVE
•To analyze how different framing techniques (positive vs. negative) influence risk-taking behavior in
financial decisions.
•To examine the role of cognitive biases in shaping individuals' investment, savings, and spending
patterns.
•To assess the impact of framing on financial product choices, such as insurance policies, loans, and
retirement plans.
•To explore the psychological and emotional factors that contribute to framing effects in financial
decision-making.
SCOPE OF STUDY
o The study on the impact of framing effects on financial decisions aims to explore the extent to
which different presentations of financial information influence individual and institutional
decision-making.
o This research will focus on understanding the psychological mechanisms behind framing effects
and how they affect various financial choices, including investment decisions, risk assessment,
savings behaviour, insurance selection, and consumer spending patterns.
o The study will also examine the role of framing in financial product marketing, policy-making,
and economic behaviour at both the micro and macro levels.
o The scope of this study extends to multiple stakeholders, including individual investors, financial
advisors, policymakers, and financial institutions.
RESEARCH METHODOLOGY
RESEARCH DESIGN SAMPLING DESIGN
The research design for this study The study follows a
follows a descriptive and analytical convenience sampling
approach, integrating both method, targeting professionals
quantitative and qualitative with varying levels of
methods to examine the impact of experience in IT service
Framing effects on financial management and financial
stability and scalability in IT service stability strategies.
companies."
RESEARCH METHODOLOGY
POPULATION SAMPLE SIZE ESTIMATION SAMPLE SIZE
The target population for This study adopts a The study consists of a
this study includes IT non-probability sampling sample size of 100
service managers, approach, combining respondents, including
financial analysts, revenue purposive and financial analysts, business
strategists, and business convenience sampling strategists, IT service
development professionals methods to examine managers, and employees
involved in decision decision making involved in financial
making process. strategies in the IT service decision-making process.
sector.
DATA COLLECTION METHODS
o Data consists not only of theoretical information but also numerical facts that can enhance the understanding
of Decision-making process of in the IT service sector.
o Data collection involves utilizing various sources to gather insights into financial strategies, pricing models,
and operational efficiencies. These sources can be categorized into primary sources of data and secondary
sources of data."
PRIMARY DATA SECONDARY DATA
Primary data is collected through a structured online Secondary data is gathered from research journals,
questionnaire targeting financial analysts, business industry reports, company white papers, government
strategists, and IT service managers. The survey publications, and previous studies on gain vs. loss
gathers direct responses on the individuals’ financial framing in investment decision, financial choices
choices under different framing conditions. under different framing conditions, etc,..
TOOLS USED FOR ANALYSIS
STATISTICAL TOOLS
1.Correlation analysis
DESCTRIPTIVE ANALYSIS 2.Independent sample T test
3. Paired samples T Test
4. CHI Square test
Percentage analysis 5. One-way Anova
CORRELATION ANALYSIS
Null Hypothesis (HO): Framing effects do not significantly alter financial choices, and the
framing of information has no impact on investment decisions.
Alternate Hypothesis (H1): Framing effects significantly alter financial choices, and the
framing of information has a substantial impact on investment decisions.
INFERENCE
The Sig. (2-tailed) value (p) is 0.5321, which is greater than 0.05 (i.e., 0.5321 > 0.05).
Hence, we accept the Null Hypothesis (H₀) and reject the Alternate Hypothesis (H₁).
Thus, Framing effects do not significantly alter financial choices, and the framing of
information has no impact on investment decisions
INDEPENDENT SAMPLE T TEST
o Null Hypothesis (H₀): Framing effects do not significantly alter financial choices, and the
framing of information has no impact on investment decisions
o Alternate Hypothesis (H₁): Framing effects significantly alter financial choices, and the
framing of information has a substantial impact on investment decisions.
INFERENCE
1. Since 0.171 > 0.05, we Accept Null Hypothesis (H₀) and Reject the Alternate
Hypothesis (H₁).
2. Thus, Framing effects do not significantly alter financial choices, and the framing of
information has no impact on investment decisions
PAIRED SAMPLE T TEST
o Null Hypothesis (H₀): There is no significant difference in financial decisions before and after
framing effects.
o Alternative Hypothesis (H₁): There is a significant difference in financial decisions before and
after framing effects.
INFERENCE
The p-value (0.000025) is highly significant (p < 0.05), confirming that the results are
statistically meaningful. We accept alternative Hypothesis.
Thus, there is a significant difference in financial decisions before and after framing effects.
CHI SQUARE TEST
Null Hypothesis (HO): There is no significant association between Framing effects and the
Financial Decisions
o Alternate Hypothesis (H1): There is significant association between Framing effects and
the Financial Decisions.
INFERENCE
o All p-values are far below 0.05, we reject the null hypothesis.
o Therefore, we reject the Null Hypothesis (H₀) and accept the Alternate Hypothesis (H₁).
o Thus, Framing Effects have a significant association with Financial Decisions
ONE WAY ANOVA TEST
Null Hypothesis (HO): There is no significant difference in Financial choices across employees
with the impact of framing effects.
Alternate Hypothesis (H1): There is a significant difference in Financial choices across
employees with the impact of framing effects
INFERENCE
• It is observed that p = 0.000000000171, which is less than 0.05 (i.e., 0.000000000171 <
0.05), and hence, we reject the Null hypothesis (H₀) and accept the Alternate hypothesis
(H₁).
• Thus, there is a significant difference in Financial choices across employees with the
impact of framing effects
FINDINGS
o Many respondents (72%) don’t receive training or education on financial decision making.
o Almost 42% of the respondents consider Financial data over other factors when making financial decisions.
o Considering the potential risks and benefits when making financial decisions is appreciated.
o Higher-level decision-makers are more likely to take calculated risks compared to lower-level employees,
who often opt for safer financial options.
o When financial options are framed positively, individuals tend to take more risks, whereas negative framing
encourages cautious and conservative decision-making.
o This effect is evident in various financial behaviors, including investment preferences, savings patterns, and
spending habits.
o Furthermore, the findings suggest that financial literacy and awareness programs are essential in helping
individuals recognize and mitigate the influence of framing effects, enabling them to make more informed
and objective financial decisions.
FINDINGS FROM STATISTICAL ANALYSIS
o CORRELATION ANALYSIS
Correlation analysis results indicates Framing effects do not significantly alter financial
choices, and the framing of information has no impact on investment decisions.
o INDEPENDENT SAMPLE T TEST
This results explains Framing effects do not significantly alter financial choices, and the
framing of information has no impact on investment decisions.
o PAIRED SAMPLE T TEST
Paired sample t test result indicates there is a significant difference in financial decisions
before and after framing effects.
FINDINGS FROM STATISTICAL ANALYSIS
o CHI SQUARE TEST
Correlation analysis results indicates Framing Effects have a significant association with
Financial Decisions.
o ONE WAY ANOVA TEST
This results explains there is a significant difference in Financial choices across employees
with the impact of framing effects.
SUGGESTION
o Develop internal financial policies that consider the impact of framing effects.
o Create awareness campaigns through newsletters, webinars, or internal meetings.
o Partner with financial experts to provide professional guidance on reducing framing
biases.
o Introduce financial decision-making simulations to train employees in recognizing
framing biases.
o Implement employee recognition programs to boost motivation.
o Organize sessions on emerging technologies, financial literacy, and decision-making
strategies.
CONCLUSION
o This study explores how the way financial information is presented—whether positively
or negatively framed—affects the decisions people make. The findings suggest that
framing plays a crucial role in shaping financial choices, influencing whether individuals
take risks or make more cautious decisions.
o When financial options are presented in a positive or risk-averse manner, people tend to
make more careful and rational decisions. On the other hand, when options are framed
negatively or in a risk-seeking way, individuals may be more prone to impulsive choices,
sometimes ignoring potential risks.
THANK YOU
LIMITATIONS OF STUDY
o Scope Restriction
The study may focus on specific financial decisions, such as investment choices,
savings behaviour, and risk assessment, but may not comprehensively cover all aspects of financial
decision-making, such as corporate finance or macroeconomic policy decisions.
o Limited Generalizability
The study may rely on experiments, surveys, or case studies conducted in specific
financial markets or demographic groups, which may limit the generalizability of findings across
different cultural, economic contexts.
o Influence of External Factors
Isolating the exact impact of framing may be challenging due to these external variables.
CORRELATION INDEPENDENT
ANALYSIS SAMPLE T TEST
Framing effects Financial Decisions
Levene's
Test for t-test for Equality of Means
Equality of
Framing effects 1 0.0634** Variances
95%
Mean Std. Confidence
Sig. (2- Differen Error Interval of the
Financial Decisions 0.0634** 1 F Sig. t df tailed) ce Differe Difference
nce
Lower Upper
Equal 2.308 0.131 - 148.00.171 -0.19 0.141 -0.473 0.084
Sig. (2-tailed) 0.5321 variances 1.3
assumed 77
Equal - 0.020 .171 -0.19 0.141 -0.473 0.084
variance 1.7
N 100 100 s not 89
assumed
PAIRED SAMPLE T CHI SQUARE
TEST TEST
Test Value df Asymp. Sig.
Pair Mean Std. Std. t df Sig.
(2 (2-
Differen Deviation Erro -
sided)
ce r Mean tailed) Pearson Chi-Square 43.523 4 0.00000000806
Before - After -0.211 0.477 0.048 -4.428 99 0.000025 Likelihood Ratio 47.082 4 0.00000000147
Linear-by-Linear 1.000 1 0.0000000134
Association
N of Valid Cases 100
ONE WAY ANOVA TEST
Source Sum of df Mean F Sig.
Squares Square (p-
value)
Between 7548.96 2 3774.48 28.62 0.00000000017
1
Groups
Within 12668.08 97 130.60 - -
Groups
Total 20217.04 99 - - -
