Friday, November 22, 2013

Wrap Your Head Around the Probability Warp

When the shopper in your store is debating with himself whether a product or service is worth the expenditure of his money and time, he may be asking at least these three questions:
  • “How important to me are the potential benefits from the purchase?” 
  • “How soon would those benefits occur?” 
  • “How likely are those benefits to occur?” 
     In most retail transactions, the answers to those questions are at midpoints of magnitude. For instance: The potential benefits are somewhat important. The benefits, if they occur, would occur at some indefinite point in the foreseeable future. There is a fair likelihood of the benefits.
     In these transactions, the consumer juggles probabilities.
     But for some retail transactions, the answer to one or more of those questions is at an end point of magnitude. For example: The potential benefits are extremely important. The benefits, if they occur, would be immediate. The benefits are highly unlikely.
     Researchers at University of Chicago, University of Miami, and Shanghai Jiaotong University find that with these considerations at the extremes, the consumer becomes very sensitive to variations in magnitudes. The sensitivity is greater still when the decision is whether or not to buy a specific item rather than which one of multiple options to purchase. Analyses of probabilities warp into considerations of either a decisive yes or a decisive no.
     In these hair-trigger situations, you can inadvertently kill a sale by introducing doubts, and you can resuscitate the transaction by giving evidence of important benefits delivered at the right time with high likelihood.
     Or you might choose to ease the hair trigger by introducing more options into the single choice situation.
     In other instances, shoppers place greater importance on possibilities than on objective probabilities. A marketing researcher at University of Texas-Austin and forensic researcher at Northwestern University asked study participants to say which of two automobiles they’d prefer. The only difference between the two cars was in the performance of the airbag in the car. Car 1 had an airbag that was more likely to save a life than was the airbag in Car 2. However, the airbag in Car 1 also had a small, but measurable, chance of causing death because of the force necessary to deploy the bag. The airbag in Car 2 had such a tiny chance of this happening it wasn’t even measurable.
     More of the participants chose Car 2 than chose Car 1.

Click below for more: 
Cultivate Positive Moods for Risk Assessment

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