Can risk ever be zero?
Understanding the Zero Risk Bias
56-0 =? Or 127-27=?
Out of the two math problems mentioned above, which one do you think is easier?
Let’s look at another example,
98*0=? Or 28*2=?
Again, which one is easier?
Irrespective of how good or bad we are at math, we all will choose the first problem in both cases. We know that the presence of zero makes the equation easy. It’s almost like zero is a shortcut.
Similar to math, zero helps us make quick decisions in other aspects of our lives as well. For instance, when we talk about risks, we would prefer a situation with zero risks v/s a situation with some amount of risk. Won’t we?
Humans tend to choose situations with zero risks or absolute certainty. Thus, we tend to opt for conditions that can eliminate risk, seeking solace in the figure of 0%, over alternatives that may offer more significant risk reduction. This tendency or this bias is called the zero-risk bias.
For example, if I give you two options -
(a) A zero-risk health policy with a 50% chance of being appropriately implemented or
(b) Another health policy with 5% risk but an 80% chance of being implementer properly
Which one would you choose? According to the zero-risk bias, most people will pick the first option even though the second option has better odds.
Why do you think this is the case?
There are multiple reasons why we give in to this bias. First, like other cognitive biases we have discussed in the past, the zero-risk bias is also a mental heuristic or mental shortcut. These shortcuts help us reduce cognitive strain and the time taken to make a decision. Instead of calculating the optimal solution, we just look at the term zero-risk to make our decision quickly and with minimal effort.
Secondly, zero-risk bias and the loss-aversion bias is very closely connected. Both the biases are based on the concept of losses being perceived as larger than gains. By altogether eschewing risk, we eliminate the possibility of any loss. This elimination will be more reassuring than an increased probability of any gains.
Some bigger-picture effects of zero-risk bias can be seen in public policies. For example, public pressure on policymakers to provide zero-risk policies might lead them to make erroneous decisions or choose suboptimal policies.
Similarly, on a business level, management decisions may be influenced by the zero-risk bias. Taking a certain amount of risk is essential for businesses of all shapes and sizes. However, with a pre-existing bias to eliminate risks, companies might lose out on many growth opportunities.
Making decisions influenced by this bias will not always be an intelligent choice. However, using the zero-risk bias to promote your product/service and your brand will always win you brownie points.
Due to this bias, customers prefer the complete elimination of a small risk over an exponential decrease in a large risk. Similarly, If you look at it the other way round, customers prefer few guaranteed benefits over the possibility of more significant benefits. Therefore, if you can attach a zero-risk quality to your product or service, go ahead and do it. This will give you an added edge over your competitors.
Another great strategy would be to offer two lines of products - one with a greater value of money but a larger risk factor and another more expensive one with zero risks or a 100% guarantee. This strategy will help you present your products in a way that makes them appear much more desirable due to the zero-risk bias.
One of the best use of this bias is offering a money-back guarantee. This tool is super successful because of the way it leverages the zero-risk bias. It eliminates the risk of the purchasing decision turning out to be a bad one. Even you are not satisfied with the product; a full refund guarantees no loss. Multiple research studies found that retailers using the money-back guarantee see a boost in sales and profit and increase customer purchase satisfaction.
Now that you understand the zero-risk bias, make sure you eliminate all the possible risks for your customer and provide as much guarantee as you can for your product/service.
I guarantee 100% success with this method!
Some quick takeaways -
● Humans tend to choose situations with zero risks or absolute certainty.
● We tend to opt for conditions that can eliminate risk, seeking solace in the figure of 0%, over alternatives that may offer more significant risk reduction. This tendency or this bias is called the zero-risk bias.
● Zero-risk bias is a mental shortcut that provides an easier way to make decisions.
● Customers prefer the complete elimination of a small risk over an exponential decrease in a large risk.
● The zero-risk bias can be used in various marketing strategies.
One last thought…
Risk-averse advertising is a lot easier for an already established brand. However, for a new venture, it is much more critical to eliminate all the possible risks. Your pitch or your communication should also be done in a way that naturally garners trust. One of the best ways to do this is by being 100% authentic to your brand. Any form of false assurance will eventually lead your customer count to zero.