Portray Relative Risk via Pricing Which Fits

Price can portray relative risk. In an Arizona State University and Tulane University study, groups of students were advised to get a flu shot. Some were told the price of the inoculation was $25, while the rest were told it was $125. So that the decision to get the shot wasn’t influenced by whether the student could afford it, all were told the fee would be reimbursed by health insurance. Each participant was then asked to estimate how likely it is they would contract the flu if not receiving the shot.
     The group told the shot cost $25 judged themselves as more likely to get the flu. The researchers’ explanation is that a lower price signifies a need for greater accessibility, and therefore a higher risk of nonuse. People are more likely to get the shot if the price is lower because it is more affordable, but also because the prospect of not getting it is scarier.
     Using a different scenario, an Aalborg University, University of Zurich, and Goethe University study produced a contrasting conclusion: A higher price portrays greater risk.
     These study participants perused an ad for a canyoning or a whitewater rafting adventure at a $100 price. Offered as an option was insurance to reimburse up to $100,000 in medical bills if the person was injured during the adventure. Some participants were told the price of this insurance was $9.90, while the others were told it was $79.90.
     The question in this study was not the likelihood of purchasing the insurance, but instead the likelihood of purchasing the tour whether or not the insurance was purchased. The answer is that people quoted a higher price for the insurance were less likely to indicate interest in purchasing the tour. Companion studies by the researchers gave evidence this was because those people considered the tour to be riskier.
     The effect is stable, but not large when calculated as an average across a group of people. Namely, for each 10% increase in the insurance price, the likelihood of purchasing the tour dropped by between 1% and 2%. A retailer could probably set a price for insurance which yields a substantial profit without the price sabotaging sales of the base item.
     Still, why isn’t that 1% to 2% higher? Perhaps because it’s an average for a group and within any group are adventurers who are attracted by signals of higher risk.

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Image at top of post based on photo by Hilmi Işılak from Pexels