The differential processing of price in gains and losses: the effects of frame and need for cognition

Perhaps the most fundamental principle of decision theory is that more money is preferred to less: the principle of desired wealth. Based on this and other principles such as reference dependence and loss aversion, researchers have derived and demonstrated mental accounting (MA) rules for multiple outcome situations. Experiment 1 tested the invariance of the desired wealth principle and two mental accounting rules (mixed gain, e.g. $100 gain and a $50 loss; mixed loss, e.g. $100 loss and a $50 gain) across types of decision maker and frame. The desired wealth principle and the MA rule for mixed gains were found to vary depending upon (1) the thoughtfulness of the decision maker (need for cognition, NC), and (2) the frame used to describe gains and losses (e.g. a gain of $x versus a gain of y%). The MA rule for mixed losses, however, was found to be immune to framing effects, even among people who are generally less thoughtful. The differential processing of gains and losses across frames (dollar versus percentage) and individuals (less versus more thoughtful) was tested further in Experiment 2 where evaluations of mixed losses were made at the level of the gestalt as well as the constituent (the gain and the loss being evaluated separately). Framing effects were evidenced only among subjects lower in NC and only when the constituent gain was evaluated. Evaluations of the overall mixed loss and the constituent loss were comparable across situation and individual, suggesting that losses motivate greater processing among people otherwise inclined toward cognitive miserliness. Copyright © 2000 John Wiley & Sons, Ltd.