Zero-Risk Bias

Zero-risk bias is defined by Wikipedia as the preference for reducing a small risk to zero over a greater reduction in a larger risk.

Customers will choose a product that eliminates risk over another product that has a greater price reduction.

For example, you could offer two products that are similar.

The first has a bigger discount but doesn’t provide a money-back guarantee.

The second is higher priced but provides a money-back guarantee.

Customers under the zero risk bias will opt for the higher priced product with a guarantee as they feel they are eliminating risk.

The fallacy in the zero risk bias is that risk can never be reduced to zero.

In this example, the company could go out of business and not provide a guarantee.

To avoid the zero risk bias, analyze your decisions more carefully and calculate the cost difference between the two options.

The price difference is the cost of the guarantee.

Ask yourself is the guarantee worth that cost.

 

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Hall T Martin is the director of Investor Connect, which is a 501(c)(3) nonprofit dedicated to the education of investors for early-stage funding. All opinions expressed by Hall and podcast guests are solely their own opinions and do not reflect the opinion of Investor Connect. This podcast is for informational purposes only and should not be relied upon for the basis of investment decisions.