We don’t like uncertainty and generally stick to what we know
When making choices, we tend to avoid new and mysterious alternatives, even when they come with significant benefits.
Barsky et al (1997). Preference parameters and behavioral heterogeneity. Quarterly Journal of Economics.
The study
11k people were offered a new job that had a 50% chance of doubling income for life, but it wasn't without risk, with an equal chance of it falling by either 20, 33 or 50%. Questioning started with the 33% gamble; if people took it, they were asked if they’d take the bigger 50% gamble too. But if they didn’t, they were asked about the smaller 20% one.
Results put people into four risk categories showing the majority were not willing to take any risk at all.
Barsky et al (1997). Preference parameters and behavioral heterogeneity. Quarterly Journal of Economics.
Key Takeaways
Focus on an improvement metric.
We prefer the certainty of what we’re used to, so the benefits of switching to a new product need to feel substantial. Outline a goal (relative performance, efficiency etc.) to anchor your product strategy around. Doing so will reduce uncertainty and boost comparisons against better-known, lower risk alternatives.
Offer a trial or free sample to create familiarity and reduce the risk around a new product. This sets the cost of new product usage at zero, during which the consumer will adjust their future preferences.
Utilize your brand umbrella. For any new sub-brands, reduce risk by clearly indicating the relationship to existing, familiar brands you own (Erdem, 1998).
Product brands take note. Risk aversion is higher for material purchases than for experiential ones such as restaurant meals or holidays (Roche et al., 2015).
In further detail
We don’t like uncertainty and generally stick to what we know
When making choices, we tend to avoid new and mysterious alternatives, even when they come with significant benefits.
Barsky et al (1997). Preference parameters and behavioral heterogeneity. Quarterly Journal of Economics.
The study
11k people were offered a new job that had a 50% chance of doubling income for life, but it wasn't without risk, with an equal chance of it falling by either 20, 33 or 50%. Questioning started with the 33% gamble; if people took it, they were asked if they’d take the bigger 50% gamble too. But if they didn’t, they were asked about the smaller 20% one.
Results put people into four risk categories showing the majority were not willing to take any risk at all.
Barsky et al (1997). Preference parameters and behavioral heterogeneity. Quarterly Journal of Economics.
Key Takeaways
Focus on an improvement metric.
We prefer the certainty of what we’re used to, so the benefits of switching to a new product need to feel substantial. Outline a goal (relative performance, efficiency etc.) to anchor your product strategy around. Doing so will reduce uncertainty and boost comparisons against better-known, lower risk alternatives.
Offer a trial or free sample to create familiarity and reduce the risk around a new product. This sets the cost of new product usage at zero, during which the consumer will adjust their future preferences.
Utilize your brand umbrella. For any new sub-brands, reduce risk by clearly indicating the relationship to existing, familiar brands you own (Erdem, 1998).
Product brands take note. Risk aversion is higher for material purchases than for experiential ones such as restaurant meals or holidays (Roche et al., 2015).
In further detail
We don’t like uncertainty and generally stick to what we know
The study
11k people were offered a new job that had a 50% chance of doubling income for life, but it wasn't without risk, with an equal chance of it falling by either 20, 33 or 50%. Questioning started with the 33% gamble; if people took it, they were asked if they’d take the bigger 50% gamble too. But if they didn’t, they were asked about the smaller 20% one.
Results put people into four risk categories showing the majority were not willing to take any risk at all.
In detail
Scarcity
We value things more when they’re in limited supply
Social Proof
We copy the behaviors of others, especially in unfamiliar situations
Prospect Theory
A loss hurts more than an equal gain feels good
Reciprocity
We’re hardwired to return kindness received
Framing
We make very different decisions based on how a fact is presented
Loss Aversion
We feel more negative when losing something than positive when we gain it
Self-Expression
We constantly seek out ways to communicate our identity to others
Default Effect
We tend to accept the option pre-chosen for us
Anchoring
What we see first affects our judgement of everything thereafter
Autonomy Bias
We have a deep-seated need to control our situations
Fast & Slow Thinking
We make knee-jerk spontaneous decisions that can cause regretful damage
Status Quo Bias
We tend to stick with our previous choices, even if the alternatives might be better
Dynamic Norms
We’re more likely to change if we can see a new behavior developing
Salience
Our choices are determined by the information we're shown