An adviser describes a fund's downside as 'a 10% chance of losing capital' rather than 'a 90% chance of preserving capital,' even though the two statements describe an identical outcome, and the client reacts far more negatively to the first phrasing. Which cognitive error, per the NISM workbook, does this illustrate?

[ A ]Framing Bias, an information-processing bias in which a person answers a question differently depending on how it is framed, even when the underlying facts are identical[ CORRECT ]

[ B ]Anchoring

[ C ]Mental Accounting

[ D ]Choice Paralysis

Takeaway

Option A is correct: this is Framing Bias.

Derivation

The NISM workbook defines Framing Bias as an information-processing bias in which 'a person answers a question differently based on the way in which it is asked (framed),' giving the example of risky-choice framing, such as losing 10 out of 100 lives versus saving 90 out of 100 lives, where outcomes are identical but reactions differ. This is distinct from Anchoring, which is reliance on an initial reference point, and Mental Accounting, which is treating money differently by bucket, both separately listed cognitive errors in the same chapter.

Why the others fail

B — Anchoring

Anchoring is reliance on pre-existing or initial information, such as a negotiation's first price, as a reference point for later judgements, not reacting differently to two logically identical phrasings of the same fact.

C — Mental Accounting

Mental Accounting is treating one sum of money differently from another equal-sized sum based on which mental bucket it is assigned to, not about the wording of a single outcome.

D — Choice Paralysis

Choice Paralysis is the inability to decide when faced with too many investment options or too much information, which is unrelated to how a single piece of information is phrased.