The Power of Framing

Daniel Kahneman, one of the pioneers of behavioral economics, describes framing in his Thinking, Fast and Slow:

“Framing effects: Different ways of presenting the same information often evoke different emotions. The statement that ‘the odds of survival one month after surgey are 90%’ is more reassuring than the equivalent statement that ‘mortality within one month of surgery is 10.'”

I was reminded of this when I was writing about how far the average stock in different indices are from their 52-week high. Although these are not exactly the same information, both of these seemingly paradoxical statements are true.


There has been a lot of talk about how many stocks are in a “bear market.” However, by the nature of where these prices are anchored to, the numbers are pretty misleading. What happens is that by definition, there are no stocks above their 52-week high, so there is nothing to counteract the stocks that are down 30, 40, 50% or more. Another thing about this particular statistic, it doesn’t distinguish stocks that are truly in a “bear market” vs those that have tripled and pulled back 20%.

So while it’s not necessarily inaccurate to say that 48% of Russell 2000 stocks are in a “bear market,” it’s misleading not to mention that by the same logic, 52% of stocks in the Russell 2000 are in a “bull market.”

P.S. In case the 48%/52% thing is confusing, I want to point out this is a coincidence. Using 30% rather than 20%,  38% of stocks in the Russell 2000 are 30% above their 52-week lows, 32% are 30% below their 52-week high.