Word: Framing effect
Definition: A form of cognitive bias, in which a person's reaction to a specific choice is different depending on the way in which the situation is presented.
Reference: Leaders in the study of behavioral economics, Amos Tversky and Daniel Kahneman, wrote a paper entitled "The Framing of Decisions and the Psychology of Choice" in 1981 to understand the psychological impact of framing effects.
The study asked the first group of participants if they would drive 20 minutes out of their way to buy a $15 calculator for $5 off. About 70% of participants said they would. For comparison, they asked a second group of participants if they would drive 20 minutes out of their way to save $5 on a $125 jacket. This time, only 29% said they would.
So what's the rationale behind this seeming irrationality? In the case of the calculator, the participant would be saving 33% off the original price, which feels like a great deal. On the flip side, she is only saving 4% when $5 is taken off the $125 coat and that just doesn't seem worth it.
It's all about the framing!
Thoughts: When creating a design that involves decision making, these are the types of psychological principles designers need to consider.
Remember to keep in mind that framing effects are closely tied to anchoring, both of which are extremely useful in e-commerce, particularly when it comes to price-setting.