Vol: 15, Issue: 1 2025

Page: 009-027

The Influence of Framing on Financial Decision-Making and Risk Tolerance

Shaurya Shah

http://doi.org/10.37648/ijtbm.v15i01.002

Classical economic theory assumes rational decision-making, as introduced by Adam Smith's concept of the "invisible hand," but real-world behavior frequently deviates due to cognitive biases like the framing effect. Behavioral economics, pioneered by Kahneman and Tversky, reveals that decision-making is influenced by how information is presented, leading to risk aversion in gain scenarios and risk-seeking in loss scenarios. This study explores these dynamics by presenting participants with positively and negatively framed financial scenarios, focusing on investment decisions.