Framing versus Integration These questions relate to whether an investor is a framer or an integrator

Test 2: Framing versus Integration These questions relate to whether an investor is a framer or an integrator

(F or N). Question 1: You purchase a stock for $20, based on a recommendation

from a source that you usually trust. The stock subsequently drops to $15. Assume there is a 50 percent chance that it will now go up $5 and a 50 percent chance it will go down another $5. What do you do?

a. I hold the stock.

b. I sell the stock. (Framer = “a”; Integrator = “b”)

SPECIAL TOPICS IN PRACTICAL APPLICATION OF BEHAVIORAL FINANCE

Question 2: Imagine yourself in each of the following situations. Which do you think would make you happier?

a. You lose $10 due to a hole in your pocket, but later you find $20 in the street.

b. You find $10 in the street.

c. I would be equally happy in Example a) and Example b). (Framer = “a” or “b”; Integrator = “c”)

Question 3: Some news is released that might have a negative impact on the price of a stock you hold. How do you typically react?

a. I usually wait for the market to communicate the significance of the information and then decide what to do.

b. I sometimes wait for the market to communicate the significance of the information, but other times I will immediately decide what to do.

c. I always act decisively and immediately decide what to do. (Framer = “a” or “b”; Integrator = “c”)

Question 4: Suppose that you are at a warehouse store, where you intend to purchase a flat screen TV. The model you’ve selected is priced at $750, and you are about to pay. However, at the last minute, you no- tice a discarded advertising flier featuring the same TV at a price of $720. You retrieve the ad, examine it more closely, and discover that the offer is still valid. To receive the discount, you’ll need to drive to

a competing electronics outlet about 10 minutes away. Will you get into your car and travel to the other store, in order to take advantage of the lower price?

a. Yes.

b. No. (Answer after Question 5.)

Question 5: Suppose you go to a warehouse store to buy a mahogany table. The table that you want costs $4,000, and you decide that you are willing to pay. While you are waiting, you strike up a conversa- tion with another store patron, who reveals that she’s seen the same table available for $3,950 at a competing local furniture store about

10 minutes away. Will you get into your car and drive to the other store to obtain the lower price?

a. Yes.

b. No.

Investor Personality Types

Answers to Questions 4 and 5. Most people would probably drive an extra 10 minutes to save $30 on the TV, but wouldn’t go to the same trouble to save $50 on the table. While the scenario in question 5 ac- tually nets more savings, a typical mental accounting scheme doesn’t envision things this way. People who go out of their way to receive a discount in Question 4 but not in Question 5 are Framers. Those who don’t are Integrators.