Consumers react by buying less on bad news, but sadly don’t buy more when hearing good, so be mindful of current sentiment!
Brief contact with a cockroach will usually render a delicious meal inedible. The inverse phenomenon — rendering a pile of cockroaches on a platter edible by contact with one’s favorite food — is unheard of.
Studies suggest that the reason we have this bias is due to the fact that negative events are much rarer than more positive outcomes. As a result, we are expectant of positive events, yet become more attentive of any negative situations that may arise. (e.g., Lewick et al., 1992; Peeters, 1971, 1989; Peeters & Czapinski, 1990). Moreover, positive events, in being more frequent, are also less urgent, and put us in less potential danger.
Daniel Kahneman, in his book Thinking Fast and Slow puts this in a more primal context:
The brains of humans and other animals contain a mechanism that is designed to give priority to bad news. By shaving a few hundredths of a second from the time needed to detect a predator, this circuit improves the animal’s odds of living long enough to reproduce.
Moving from the primal to the financial, most people, if offered a chance to win $150 or lose $100 on a coin toss won’t take the deal. The potential loss, though less than the potential gain by a substantial amount, isn’t worth the risk.
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