83 British Journal of Psychology (2012), 103, 83–97 C ⃝ 2011 The British Psychological Society The British Psychological Society www.wileyonlinelibrary.com Framing effects and risk-sensitive decision making Sandeep Mishra 1∗ , Margaux Gregson 2 and Martin L. Lalumi` ere 2 1 University of Guelph, Ontario, Canada 2 University of Lethbridge, Alberta, Canada Prospect theory suggests that people are risk-averse when facing gains, but risk-prone when facing losses, a pattern known as the framing effect. Although framing effects have been widely demonstrated, few studies have investigated framing effects under conditions of need. Risk-sensitivity theory predicts that decision makers should prefer high-risk options in situations of high need, when lower risk options are unlikely to meet those needs. In two experiments, we examined (1) whether framing effects occurred in behavioural tasks involving risky decision making from description and decision making from experience, (2) whether participants’ risky decision making conformed to the predictions of risk-sensitivity theory, and (3) whether decision framing interacted with conditions of need to influence decision making under risk. The results suggest that under all circumstances, risky decision making conformed to the predictions of risk-sensitivity theory. Framing effects were at least partially demonstrable under all experimental conditions. Finally, negative frames interacted with situations of high need to produce particularly elevated levels of risky choice. Together, the results suggest that risk-sensitivity theory can augment prospect theory to explain choice under conditions of need. In economics, traditional normative models of decision making posit that people make utility-maximizing, or ’rational’ decisions under virtually all circumstances. A large body of evidence, however, suggests that people often make ’irrational’ decisions under various predictable conditions (e.g., Allais, 1953; Ellsburg, 1961; Kahneman & Tversky, 1979; reviewed in Aktipis & Kurzban, 2004). One such violation of normative utility models that has received substantial empirical attention is the framing effect. Prospect theory (Kahneman & Tversky, 1979) posits that people should exhibit a reversal of risk preferences in mathematically identical decisions contingent on whether the decision is framed negatively (in terms of a loss) or positively (in terms of a gain). Specifically, people tend to be risk-prone when facing losses (i.e., exhibiting loss aversion) and risk-averse when facing gains. Decision preferences conforming to the predictions of prospect theory have received considerable empirical support (reviewed in Levin, Schneider, & Gaeth, 1998; for a meta-analysis, see K¨ uhberger, 1998). Why do people exhibit vastly different levels of risk-acceptance in decision scenarios involving mathematically identical outcomes? Prospect theory suggests that people ∗ Correspondence should be addressed to Sandeep Mishra, Department of Psychology, University of Guelph, Guelph, Ontario N1G 2W1, Canada (e-mail: mishrs@gmail.com). DOI:10.1111/j.2044-8295.2011.02047.x