In Press, Journal of Economic Psychology The framing effect and risky decisions: Examining cognitive functions with fMRI

Abstract: the “framing effect ” is observed when the description of options in terms of gains (positive frame) rather than losses (negative frame) elicits systematically different choices. Few theories explain the framing effect by using cognitive information–processing principles. In this paper we present an explanatory theory based on the cost-benefit tradeoffs described in contingent behavior. This theory proposes that individuals examining various alternatives try to determine how to make a good decision while expending minimal cognitive effort. For this study, we used brain activation functional magnetic resonance imaging (fMRI) to evaluate individuals that we asked to choose between 1 certain alternative and 1 risky alternative in response to problems framed as gains or losses. Our results indicate that the cognitive effort required to select a sure gain was considerably lower than the cognitive effort required to choose a risky gain. Conversely, the cognitive effort expended in choosing a sure loss was equal to the cognitive effort expended in choosing a risky loss. fMRI revealed that the cognitive functions used by the decision makers in this study were localized in the prefrontal and parietal cortices of the brain, a finding that suggests the involvement of working memory and imagery in the selection process