Risk AversionOpen Access

Risk Aversion

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

Setup

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

Results put people into four risk categories showing the majority were not willing to take any risk at all.

Study graph

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.

Takeaway image

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.

Takeaway image

Utilize your brand umbrella. For any new sub-brands, reduce risk by clearly indicating the relationship to existing, familiar brands you own (Erdem, 1998).  

Takeaway image

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).

Takeaway image
Risk Aversion

Risk Aversion

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.

The study

Setup

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

Results put people into four risk categories showing the majority were not willing to take any risk at all.

study graph
np_read_2490885_000000

In detail

Hungry for more?

Savour the full features of Coglode Cookbook

Upgrade

All Nuggets

Academic data

Key takeaways

Pairings

Cheat Sheets

Collect Nuggets

Nuggets In The Wild

Coglode Live monthly

Nuggets In The Wild

Related "Wilds"

Currently being sourced...
Nuggets

Snack on these...

Open access, foundational Nuggets

Scarcity

Scarcity

We value things more when they’re in limited supply

Social Proof

Social Proof

We copy the behaviors of others, especially in unfamiliar situations

Prospect Theory

Prospect Theory

A loss hurts more than an equal gain feels good

Reciprocity

Reciprocity

We’re hardwired to return kindness received

Framing

Framing

We make very different decisions based on how a fact is presented

Loss Aversion

Loss Aversion

We feel more negative when losing something than positive when we gain it

Default Effect

Default Effect

We tend to accept the option pre-chosen for us

Anchoring

Anchoring

What we see first affects our judgement of everything thereafter

Fast & Slow Thinking

Fast & Slow Thinking

We make knee-jerk spontaneous decisions that can cause regretful damage

Salience

Salience

Our choices are determined by the information we're shown

Connected to

Hungry for more?

Savour the full features of Coglode Cookbook

All Nuggets, data & takeaways

Academic data

Key takeaways

Pairings

Cheat Sheets

Collect Nuggets

Nuggets In The Wild

Monthly Coglode Live calls

Upgrade

Join Coglode Live!

May 25, 2022 16:00

GMT

Risk Aversion
We don’t like uncertainty and generally stick to what we know

Welcome to a concept that's global and evolutionarily-based.

In this deep-dive, we'll look at:

• Why all of us are Risk Averse on some level

• How this manifests in our life and work

• Ways / Nuggets to overcome Risk Aversion and make better decisions.

As usual, there'll be a quiz and goodies, so come join us!

Show more
Risk Aversion
We don’t like uncertainty and generally stick to what we know
Sign up to attend

Running workshops?

Risk Aversion

is included in Box One of our physical workshop tool.
is included in Box Two of our physical workshop tool.
Nuggets Boxes