Framing Decisions

Abstract

Framing a decision problem can be a very demanding task: firstly, it requires a very good knowledge on the determinants of the problem and then, managerial experience becomes an important issue. In other words, framing refers to the construction of a decision problem which can be analyzed in terms of costs and benefits, but also to managerial art. As a particular implication of decision framing, cost becomes an ambiguous notion as it outdistances more and more from expenditure. When framing implies the implicit representation of resource consumption, costs are measured differently.

In this paper, I focus on the theory of decision framing relating it to various cost constructs and I provide one example of framing from individuals’ experience, where I intend to include some insightful evidence of the managerial art of framing.

Keywords: consistent framing, shadow price, opportunity cost

JEL Classification: C61, M41