American Journal of Applied Sciences

DOES FRAMING AFFECT RISK ATTITUDE? EXPERIMENTAL EVIDENCE FROM CREDIT MARKET

Dmitry Vladimirovich Burakov

DOI : 10.3844/ajassp.2014.391.395

American Journal of Applied Sciences

Volume 11, Issue 3

Pages 391-395

Abstract

In this article we study the effect of framing on the attitude of lenders toward risk over a credit cycle and also review potential causes of negative framing when making decisions. Using an experimental setting, we present evidence of frame of losses’ significant impact on willingness to accept credit risk: In comparison with frame of gains, willingness to accept credit risk increases from 29% in frame of gains up to 77% in frame of losses. Among the main reasons leading to a shift in frames, changes in bargaining power and conflict of interests are proposed. Admitting the existence of negative framing in credit market helps explaining duration of credit crunches and excessive risk taking during the upward phases of credit cycle.

Copyright

© 2014 Dmitry Vladimirovich Burakov. This is an open access article distributed under the terms of the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original author and source are credited.