How Framing Influences Strategic Interactions

Abstract

In many settings, a person’s outcome depends not only on her own behavior, but also on her counterpart’s. Such strategic decisions have traditionally been studied using normative game theory, which assumes that people adopt equilibrium strategies and will reach the same decision, regardless of how the problem is described (framed). We examine a potentially important type of framing effect—focusing on how the relationship between players’ actions generates joint outcomes. Any strategic interaction can be described by either spelling out the outcomes of all possible action combinations (which we call “outcome framing,” or simply “O-framing”) or describing what will happen if different players choose the same action or choose different actions (which we call “relation framing,” or simply “R-framing”). O-framing has been the typical way to describe a strategic problem in prior work, whereas R-framing is commonly employed in real-life communications. We propose that these functionally equivalent frames induce different psychological processes and lead to different decisions: Relative to O-framing, R-framing increases players’ beliefs about their counterparts’ likelihood of coordinating on a cooperative option. We demonstrate this effect in the context of classic games such as the Prisoner’s Dilemma and the Stag Hunt. We find that, compared with O-framing, R-framing significantly increases people’s likelihood to choose the action that maximizes collective benefits rather than individual interests, and it does so by increasing beliefs that one’s partner will choose the same action as well. We derive conditions when this effect is likely to emerge and discuss the managerial implications of this research. This paper was accepted by Yuval Rottenstreich, behavioral economics and decision analysis. Supplemental Material: The online appendix and data files are available at https://doi.org/10.1287/mnsc.2023.00518 .