DEFINITION of Frame Dependence
Frame dependence is the human tendency to view a scenario differently depending on how it is presented. Frame dependence can explain explain irrational choices. Frame dependence often influences the way people make decisions about investing. People sometimes make one decision if an option is framed in terms of losses, but choose differently if the same option is framed in terms of gains.
BREAKING DOWN Frame Dependence
Frame dependence is one component of psychologist Daniel Kahneman's Nobel Prize-winning prospect theory, a major contribution to behavioral economics. Along with co-researcher Amos Tversky, Kahneman showed several cognitive biases that cause people to make irrational decisions, including the anchoring effect, loss aversion, mental accounting, the planning fallacy and the illusion of control.