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On October 24th, 1994, the pro-government German newspaper 'Die Welt' reported that the Minister of Family Affairs, Mrs. Hannelore Ransch, member of the ruling Christian Democratic Union (CD U), withdrew her candidacy for a second term after serving a four year term. While Chancellor Helmut Kohl and other party colleagues officially expressed their regret for this move, the conservative press openly announced their relief. A symbolic photo of Ransch was published together with the article: In the background, two direction indicators are discernable, one pointing to the 'emergency exit' and the other to the 'escape route'. What led up to this state of affairs? Some months before, Ransch had triggered off a storm of public indignation due to her proposal to partly re­ place the present German child-benefit system by 'tax fines for the childless'. To be exact, the minister's idea was to distinctly increase child allowance and child benefit, and to bill childless families for this measure, that is, childless couples and singles should have to payoff a tax surcharge christened 'Zu­ kunftsbeitrag' (,contribution to the future'). However, only the second part of her proposal, the tax fine, made it to the headlines (compare, for exam­ ple, 'Frankfurter Allgemeine Zeitung', February 19th, 1994, and 'Die Welt', March 28th, 1994).

Inhaltsverzeichnis

Frontmatter

Introduction

1. Introduction

Abstract
On October 24th, 1994, the pro-government German newspaper ‘Die Welt’ reported that the Minister of Family Affairs, Mrs. Hannelore Rönsch, member of the ruling Christian Democratic Union (CDU), withdrew her candidacy for a second term after serving a four year term. While Chancellor Helmut Kohl and other party colleagues officially expressed their regret for this move, the conservative press openly announced their relief. A symbolic photo of Rönsch was published together with the article: In the background, two direction indicators are discernable, one pointing to the ‘emergency exit’ and the other to the ‘escape route’.
Stefan Traub

Framing Effects: Theory and Evidence

Frontmatter

2. The Organization of Experience

Abstract
People make judgments and decisions all the time. No wonder that a lot of scientific branches are concerned with the theory of judgment and choice; economics, psychology, sociology, philosophy, biology, and medicine—to mention just some. Standard economic theory of choice differs from other disciplines by its treatment of normative and descriptive models of behavior, that is, models trying to answer the questions: “How should people behave?” and: “How do people actually behave?” respectively. More specifically, it is the conception of rationality of human behavior that sets off economics against other disciplines.
Stefan Traub

3. Prospect Theory: Reference—Dependent Decision—Making

Abstract
In the previous chapter we have argued that decision-making is an evolutionary process of preference construction rather than static preference revelation and that this process is contingent on the subjective definition of the situation, the frame (itself being adopted within the decision process). Any descriptive decision theory therefore has to take into account that (a) the factual attributes of alternatives in the choice set and the decision maker’s subjective representation of them do not necessarily have to correspond, that (b) choice alternatives are related to a reference system in order to evaluate them rather than being absolute, and that (c) one and the same decision problem may be treated differently depending on the frame adopted.
Stefan Traub

4. The Endowment Effect

Abstract
In this Chapter, we are concerned with perhaps the most important implication of loss aversion: Empirical and experimental observations have shown that people tend to underweight opportunity costs relative to out-of-pocket costs. Thaler (1980, p. 44) who explained this finding by loss aversion labelled it endowment effect. At first glance, the undweighting of opportunity costs appears to be quite innocuous. In this Chapter, we will show, however, that this framing effect could have far reaching consequences for economic analysis and policy.
Stefan Traub

5. The Status Quo Bias

Abstract
An important implication of reference dependence and loss aversion is that stability—the current state—is favored over change. Kahneman and Tversky (1984, p. 348) exemplified this by means of the story of two identical twins who find two alternative environments equally attractive. If, by a stroke of fate, the twins are separated and placed in the two environments, they will adopt their new states as reference points. Since they evaluate the advantages and disadvantages of each other’s environments on basis of their reference states, both will no longer be indifferent between the environments but will prefer to stay where fate drove them to.
Stefan Traub

6. Upshot: (How) Should Economists React to Framing Effects?

Abstract
How should economists react to framing effects? The experimental and empirical evidence in favor of the framing hypothesis is overwhelming. The endwoment effect has amply proven its power of resistance to attempts to eliminate it by aid of (monetary) incentives and demand revealing mechanisms. Apparently, the status quo bias turns out to be even stronger under real world settings than in the laboratory. Incidents such as the credit card lobby case (Thaler, 1980), Minister Rönsch’s withdrawal, and the car insurance field study (Johnson et al., 1993) show that framing effects can exhibit a far-reaching practical importance. Moreover, the “empirical marketing literature is no doubt replete with findings that we could legitimately interpret as real-world framing effects” (Machina, 1987, p. 145), that is, manipulating the frame already is a commonly accepted and used business method.1
Stefan Traub

Framing Effects in the Perception of Taxation: An Empirical Study

Frontmatter

7. The Survey

Abstract
In this part, we shall present our survey conducted among the personnel of several North German firms, the events about the former Minister of Family Affairs Rönsch forming the background for it. Though we of course do neither pretend to know the only ‘true’ reason for Rönsch’s withdrawal nor aim at an exact replication of the events that led to the end of her political career, it is nevertheless challenging to investigate the taxpayer’s susceptibility to manipulations of the frame, and the consequences of this manipulation.
Stefan Traub

8. Results

Abstract
For each person participating in our survey, we raised judged fair tax burdens for childless singles, childless married couples, married couples with one child, and married couples with two children, given monthly gross incomes of 2,500; 3,750; 5,000; 7,500; and 10,000 Deutschmarks. Moreover, each participant was presented both the opportunity costs (foregone gain) framing and the out-of-pocket costs (loss) framing of the tax system. This proceed provided us with 4 × 5 × 2 = 40 observations per participant. As 219 persons successfully participated in the study, we disposed of N = 219 observations per question and of 8,760 judged fair tax burdens altogether.
Stefan Traub

9. Summary and Conclusion

Abstract
In October 1994 the German Minister of Family Affairs, Mrs. Hannelore Rönsch, as expected, withdrew her candidacy for a second term after having served a four year term. Some months before, she had triggered off a storm of public indignation, owing to her plan to introduce tax surcharges for the childless in order to finance higher tax reliefs for families with children.
Stefan Traub

Backmatter

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