Research Shows Advertisers That Consumer Choices Are Risky Business

When it comes to experiences involving choices around money, people take more risks in negative situations and less risk in positive ones. New research looks at whether this is the same for everyday experiences -- from going to the movies or looking for a hotel to eating a sandwich.

"Imagine you're in Las Vegas and losing money at the roulette table," says Martin Reimann, a professor from the University of Arizona. "Past research shows you're more likely to make riskier bets when losing, but when winning you are more likely to become less risk-averse."

Apparently that's not the same reaction that people have to daily events. Reimann, along with Pinterest Analyst Jolie Martin and Harvard Professor Michael Norton, conducted a series of seven experiments and found that in negative experiences directly unrelated to money, people display the opposite behavior, so they are less willing to take risks during a negative experience and more willing to take risks during a positive experience.

While the study did not test the influence on search, Reimann speculates that for negative experiences consumers would likely conduct fewer searches on the topic. For positive experiences, consumers would dig deeper into the findings and conduct more queries per question.

It is possible that people set different goals for experiences than for money. "Past memories from extreme experiences such as the worst dentist visit or eating the best dessert will determine and trigger the amount of risk the individual is willing to take," Reimann said. "For positive experiences people become risk-seeking when it comes to experiences, but past research shows that's different from when money is involved."

The findings challenge a long-standing notion that people are risk-averse for positive and risk-seeking for negative experiences. It's true for money, but for the 18 difference experiences analyzed such as eating at a restaurant or watching a television show it's completely the opposite, which "is a new notion that shows that psychologically, there might be a different mechanism that explains the reaction," Reimann said.

In one experiment, participants considered a range of 18 experiences — things like trying a new dentist, getting a haircut, eating a sandwich, or watching a new TV show. They were asked to rate its potential on a scale from bad to good, according to the study.

The findings reveal that advertisers need to lower the perceived risk for products that consumers generally perceive as negative experiences, such as doing the laundry or going to the dentist, to increase the change of having a positive outcome.

Consumers are more likely to increase the risk they take when relating the product to a positive experience and are more inclined to remain loyal to the brand. Increasing variety and providing new experiences can prevent consumers from defecting to another brand, Reimann said.

Another experiment showed when making choices about money, people tend to use zero as their reference point. Winning $5 is five more than none, but when thinking about experiences, people focus on extremes, according to the findings.

Even when reminded that reference points should be neutral, individuals tend to compare the next trip to the dentist against their worst dental experience and wonder how that five-tiered chocolate-raspberry torte might compare to the amazing lemon-ginger custard the individual remembers for the rest of their life.

The researchers have moved on to a brain-imaging study to see whether they can measure the activation in memory. The group should complete the study within four months.



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