Atlas of Cognitive Biases #25 · Information and beliefs. Same number, different decision
What it looks like in trading
“I'll lose $50” instead of “I'm risking 0.5R”
“I gave back half my profit” instead of “I closed in profit”
counting results in money instead of in R
An example from a session
A position was up $75 and closed at +$37. In the “I gave back $38” frame the trader feels a loss and tries to win it back. In the “+$37, according to plan” frame they make the next decision calmly.
What the research says
Tversky and Kahneman (1981), the “Asian disease” problem: when described in terms of lives saved, 72% of participants chose the safe programme. When the identical choice was described in terms of deaths, only 22% chose the same programme.
The same information presented differently (as a gain or a loss, a percentage or an amount) leads to different decisions.
How does the framing effect show up in trading?
Typical signs: “I'll lose $50” instead of “I'm risking 0.5R”; “I gave back half my profit” instead of “I closed in profit”; counting results in money instead of in R.
Educational content, not psychological advice or an investment recommendation.