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Airlines and the Framing Effect

By Stuart Buck, Esq.

I'm puzzled by the fact that airlines have started charging extra fees for baggage. Haven't they heard of the framing effect? They should charge everyone the price for carrying three bags, and then give a "discount" if you check any fewer bags. As Tversky and Kahneman write: Thaler (1980) drew attention to the effect of labeling a difference between two prices as a surcharge or a discount. It is easier to forgo a discount than to accept a surcharge because the same price difference is valued as a gain in the former case and as a loss in the latter. Indeed, the credit-card lobby is said to insist that any price difference between cash and card purchases should be labeled a cash discount rather than a credit surcharge.

Full post as published by The Buck Stops Here on December 09, 2008 (boomark / email).