Monday, April 9, 2012

Cultivate Positive Moods for Risk Assessment

When shoppers read or hear about possible adverse consequences of using a product, they’ll overestimate the likelihood of the consequences. If the label says “it happens rarely,” they’ll be thinking, “it happens often enough to make a difference.”
     Researchers at Indiana University and Ball State University found that if the shopper is in a positive mood, the understanding of risk is more accurate. There’s a weighing of probability, severity, and tradeoffs. When it’s to the benefit of your customer and you to have a nuanced assessment of risks, cultivate a positive mood.
     Still, psychologists at Carnegie Mellon University, Columbia University, and University of Chicago who study real-world decision making point out that when it comes to assessing risks, consumers think in terms of possibilities—“How can I make this happen?” “How can I keep this from happening?”—more often than in terms of probabilities—“How likely is it that this will happen?” “How much would it cost me to make what I want twice as likely to happen?” “How much to make what I don’t want half as likely?”
     People pay much more than justified by the odds in order to gamble on a lotto ticket. “You can’t win if you don’t play!” and “Somebody has to win!” become rationales for spending money to turn a zero possibility of gain into a very small, but better-than-zero, chance. People pay for an extended service contract on an appliance even when the probability is that the cost of repair or replacement would be less than the cost of the ESC.
     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 probability of this happening that it wasn’t even measurable.
     In the study, more of the participants chose Car 2 than chose Car 1. They were placing greater importance on possibilities than on probabilities. The researchers called this the “betrayal effect.” Car 1 might betray their trust.

Click below for more:
Reduce Unwanted Risks for Your Shoppers
Profit from Shoppers’ Positive Moods
Emphasize Possibilities, Not Probabilities
Betray the Betrayal Effect
Present Warranties as Insurance, not Assurance

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