Practical analysis for investment professionals
23 July 2018

New Decision-Making Perspectives: 13 Ways to Break the Frame

Framing is one of behavioral finance’s most well-known pitfalls.

It has been explored in detail by such experts as Daniel Kahneman whose research on the psychology of choice found that people change their decisions when the same problem is framed in different ways. In investing, improperly framed decisions can lead to missed opportunities to generate returns or, worse yet, the failure to protect investments against potentially systemic risks.

The good news is that identifying the problem is the first step towards its solution. So once we’re aware of how incorrect framing can sabotage performance, how can we ensure that we are framing decisions properly?

Berkshire Hathaway vice chairman Charlie Munger recommends building a latticework of mental models based on the premise that it’s easier to understand the complete range of possible outcomes involved in a decision and avoid bias-driven mistakes when we view situations from multiple frames of reference.

Alternatively, we can look to outsiders’ perspectives to see how a situation is viewed from different contexts.

Carnegie Mellon University professor Anita Williams Woolley, for example, has found that mixed-gender teams have a higher “collective intelligence,” which improves their decision-making processes. It may be easier to cultivate cognitive diversity in the presence of physical diversity: By including people who look different from one another, we can help guarantee that varied perspectives are heard on an issue.

However, resource constraints can make it difficult to assemble such teams. So we may need to find other ways to access different perspectives.

And if we’re looking for new perspectives to add to our tool kit, these 13 experts are worth paying attention to:

Sallie Krawcheck (@SallieKrawcheck) is the former CEO of Citi Global Wealth Management. After the global financial crisis, she realized that the financial industry had serious blind spots and has since been developing ways to address them.

Danielle DiMartino Booth (@DiMartinoBooth) is a former adviser to Richard W. Fisher at the Federal Reserve Bank of Dallas and author of Fed Up: An Insider’s Take on Why the Federal Reserve Is Bad for America. As a Bloomberg View contributor, she applies her perspective as a former US Federal Reserve insider to provide insights into central bank actions.

Sandra Ro (@srolondon) has worked on a variety of endeavors over the years, serving on everything from foreign exchange desks to cryptocurrency enterprises. She recently discussed the opportunities, risks, and regulatory issues involved in cryptocurrencies at the 71st CFA Institute Annual Conference.
Nilofer Merchant (@nilofer) is a former Apple executive who specializes in business innovation. Her books discuss how organizations can better employ new ideas, and her TED Talk considers the frameworks, strategies, and cultural values of companies.

Lauren Foster (@LaurenFosterNYC) is co-lead of the  Women in Investment Management Initiative at CFA Institute and a former reporter and editor at the Financial Times. Her work can be read regularly on Enterprising Investor.

Helena Morrissey (@MorrisseyHelena) is head of personal investing at Legal and General Investment Management. She is founder of the 30% Club, which works to increase the representation of women on corporate boards. However, she says that women in the workplace should not “Lean In.”

Fran Skinner, CFA, (@FranSkinnerAUM) is chief administrative officer of investments at Diamond Hill Capital Management and a leadership expert who works with investment firms to assess and develop talent to create high-performing teams.

Soumaya Keynes (@SoumayaKeynes) is trade and US economics editor at The Economist, as well as co-host of the Trade Talks podcast. She also conducted economic research at the Institute for Fiscal Studies.

Claudia Sahm (@Claudia_Sahm) is chief of consumer and community development research at the Board of Governors of the Federal Reserve System. She is currently studying consumer sentiment and household responses to fiscal stimulus.

April Lee-Tan, CFA, (@AprilLeeTan) is former president of CFA Society Philippines as well as an advocate for financial literacy. She is head of research at COL Financial and serves on the Uniform Adjusted Financial Reporting Standards (UAFRS) Advisory Council.

Karen Firestone (@Karen_Firestone) is CEO of Aureus Asset Management and a financial commentator and author. Her research focuses on the larger issue of risk and how it can affect our decisions.

Barbara Stewart, CFA, (@RichThinkingB) is an author and wealth management professional who focuses on how women, in particular, approach investment decisions. Her research looks at what investors expect from financial professionals and the ways that advisers can improve their relationships with their clients.

Christopher Ailman (@CJAtheCIO) is chief investment officer at CalSTRS and brings an asset owner’s perspective to such issues as environmental, social, and governance (ESG) considerations. He also represents institutional investors on the MSCI Barra Index editorial advisory board.

This September, the Diversity and Inclusion 2018 Conference will be held in San Francisco. At the conference, Lauren Foster, Chris Ailman, and Fran Skinner will join other leading researchers and investment practitioners to discuss practical strategies to improve decision making at investment firms.

It’s an opportunity to benefit from their perspective firsthand.

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All posts are the opinion of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute or the author’s employer.

Image Credit: ©Getty Images/Bamusiime Sylvia

About the Author(s)
Peter M.J. Gross

Peter M.J. Gross was an online content specialist for CFA Institute, where he managed blogs for the CFA Institute Annual Conference, European Investment Conference, and Middle East Investment Conference. Previously, he worked at Hampton Roads Publishing Company and at MFS Investment Management. Mr. Gross' articles have been published by Enterprising Investor, City A.M., Seeking Alpha, and The Hook, and his work has been highlighted by Real Clear Markets. He holds a BA degree from Connecticut College.

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