Narrow framing
Judging each gamble in isolation instead of as one part of the whole portfolio.
What it means
The tendency to evaluate a risky decision on its own rather than in the context of the broader portfolio of risks and wealth it joins. A rational agent integrates a new gamble with everything else they face; a narrow framer treats it as a standalone bet, which combined with loss aversion makes them reject favorable risks they should accept. Narrow framing explains why people buy unnecessary insurance, refuse small positive-expected-value bets, and react to single stocks rather than portfolio effects. It matters because aggregation — viewing decisions broadly and over time — neutralizes many loss-aversion-driven mistakes.
Examples
An executive declines a 50-50 bet to win $200 or lose $100, though accepting many such independent bets over a career is nearly sure to pay off.
A shopper buys insurance on a forty-pound phone case, treating that one small loss on its own rather than as one of hundreds of tiny risks a household absorbs yearly without noticing.
An investor sees one holding drop twenty percent and sells in alarm, never checking that the portfolio it sits inside is flat for the month.
First described in Kahneman & Lovallo (1993); Read, Loewenstein & Rabin (1999).