You've finally arrived at your long-haul flight destination and are heading to the rental car counter where you booked a car for your trip in advance. There, you're informed that your chosen insurance doesn't cover all possible risks. You're offered a "carefree package" for a small surcharge, which covers all possible risks and requires no deductible. You now have to decide whether you want to choose this option and whether you're subject to the zero-risk bias.
It is known that even when risks are small, people often feel the need to eliminate them completely. This does not only apply to financial decisions, as an experiment in the USA shows . In general, people there are more risk-tolerant. Scientists in Greensboro, North Carolina, approached people in a shopping mall who had just left a hardware store. They showed them a bottle of toilet bowl cleaner and listed the potential risks: 15 out of 1,000 consumers could be poisoned by the gases, and another 15 out of 1,000 consumers could injure their eyes from the cleaner.
People cannot calculate probabilities
The passersby were then asked whether they would be willing to pay more to get a safer product – and how much they would pay for it. Researcher Kip Viscusi from Northwestern University and his colleagues obtained a clear result: The respondents were willing to pay 65 cents more to reduce the risk of injury to 10 out of 1,000. For the next 5 per thousand, the passersby would have been willing to pay another 19 cents more. What is particularly interesting is that a large proportion of the respondents would have been willing to spend an additional 83 cents to reduce the risk to zero. This behavior is known as the zero-risk bias. People would rather eliminate a very small risk completely than make a large risk significantly less risky. There are at least two reasons for this behavior: people often have difficulty calculating probabilities, and they have limited mental capacity.
The Zero-Risk Bias in Online Marketing
In online marketing, the zero-risk bias principle can be applied by minimizing or, ideally, eliminating the risk for potential customers. To achieve this goal, you must identify potential risks and hazards for your target audience. There are many ways to minimize the fear of making incorrect orders. For example, size charts, detailed product descriptions, and numerous images or videos can provide greater security. Customer reviews are also important because they can increase trust in the product and reduce the return rate. For smaller and newer online shops, it is a good idea to allay customers' financial concerns by offering low-risk payment methods such as PayPal, cash on delivery, or purchase on account, and by granting a longer return period than required by law. Offering financing can also help minimize the fear of high costs.
It's important to understand that in most situations, it's impossible to reduce risk to zero. This is why it's called the "zero-risk illusion." Nevertheless, the zero-risk bias principle can be effectively applied by identifying and eliminating or minimizing potential risks and customer concerns. It's advisable to aggressively communicate risk-avoidance solutions on your website and all other advertising platforms to gain customer trust.
Conclusion
While zero risk isn't always the best economic decision, we can't escape the human desire to minimize risk. By identifying and eliminating potential risks and customer concerns, as well as using low-risk payment methods and offering extended return periods, companies can effectively apply the zero-risk bias principle in online marketing and attract more customers.
