Perceived Risk Processing: Research Stream

1. Perceived Risk Processing:Research Stream CSR 406 Ting-Han Chao Courtney Briggs AtulTodi

2. Roselius (1971) Taylor (1974) Bauer (1960) Perry&Hamm (1969) Cox (1967) Perceived Risk Peter & Ryan (1976) Mitchell (1991) Cunningham (1967) Bettman (1973)

3. Cunningham (1967) Uncertainty Consequences Perceived Risk Consequence risk: “The amount that will be lost if the consequences of an act were not favorable” Uncertainty risk: “The individual’s subjective feeling of certainty that the consequences will be unfavorable”

4. Perceived Risk Uncertainty Consequences Performance social psychosocial Cunningham (1967) Perry&Hamm (1969) Financial physical Roselius (1971) time

5. Taylor (1974) Believed that the six elements of risk exist in both uncertainty and consequences. Kaplan & Jacoby (1974) Did an empirical study with 104 Purdue students found five types of consequences ( performance, psychosocial social, financial, and physical) explained overall 74% of the variance Perceived Risk Uncertainty Consequences Performance psychosocial Performance psychosocial social social Financial physical Financial physical time time

6. Bettman (1973) Perceived Risk Inherent risk / Handling Risk Uncertainty Consequences Performance psychosocial Performance psychosocial social social Financial physical Financial physical time time

7. Inherent risk/Handling risk Bettman 1973 Inherent Risk: • The latent risk of a product holds for a consumer. It represents the end result of risk which the product itself brings Handling risk: • Amount of conflict the product brings to the buyers choice. It represents the end result of consumer’s information acquisition and risk reduction process

8. Bettman (1973) Perceived Risk Inherent risk / Handling Risk Uncertainty Consequences Performance psychosocial Performance psychosocial social social Financial physical Financial physical time time

9. Measuring Model Two-component model Mitchell (1991) Cunningham (1967) Peter & Ryan (1976) Consequences Uncertainty Probability of negative Probability of negative Importance of consequences occurring negative consequences Importance of consequences occurring negative consequences

10. (1960) Bauer Perceived Risk Individual Consumer: Social Class (1967) Cunningham (1964) Kogan and Wallach Impulsiveness Self-Sufficiency Independence Inherent risk / Handling Risk + Risk Attitude Perceived Risk Uncertainty Consequences Rigidity Anxiety - Performance psychosocial Performance psychosocial Individual Consumer: Demographics- Age + Gender social social Financial physical Financial physical time time Antecedents of Perceived Risk

11. Zikmund & Scott (1974) Schaninger (1976) Self Confidence Personality Measures Impulsiveness Self-Sufficiency Independence Anxiety Plax & Rosenfeld (1976) Individual Risk Taking Profile + Risk Attitude Perceived Risk - Rigidity Self-Esteem Risk Taking Risky Decision-making Personality Profile High Risk Taker: Dynamic task –oriented leader. Individual Consumer: Demographics- Age + Gender Antecedents of Perceived Risk

12. Toh & Heeren (1982) Individual Consumer: Demographics- Age + Gender Risk Taking Profile Age - Perceived Risk Gender Antecedents of Perceived Risk

13. American vs. Spanish MBA Students Kinkhan & Karande (1990): Verhage, Yavas & Green (1991) : Culture Saudi Arabia, Thailand, Turkey and Netherlands Socioeconomic Status Mitchell & Boustani (1993) Individual Consumer: Demographics: Age Risk Taking Profile Perceived Risk Antecedents of Perceived Risk

14. Perceived Self-Efficacy Krueger & Dickson (1994) Change in Perceived Opportunity for Dilemmas +.387 Perceived Risk +.341 Performance Feedback Change in Perceived Self-Efficacy for Dilemmas Change in Dilemma Risk Taking Behavior Individual Consumer Demographics Age Culture Risk Taking Profile Change in Perceived Threat for Dilemmas -.453 -.282 Bandura (1977): Self-Efficacy is the belief that one can perform a response leading to the fulfillment of a goal

15. Static Traits e.g. Risk Affinity, ambiguity intolerance, sensation seeking trait Dynamic Influences e.g. human motives Cultural Factors e.g. risk acculturation Consumer: Economic Demographics Psychographics Mitchell & McGoldrick (1998): Proposes Antecedents of Perceived Risk Conchar et al (2004): Proposed Individual Risk Profile Perceived Risk Perceived Self-Efficacy Individual Consumer: Demographics: Age + Culture Risk Taking Profile

16. Static Traits e.g. Risk Affinity, ambiguity intolerance, sensation seeking trait Dynamic Influences e.g. human motives Cultural Factors e.g. risk acculturation Perceived Risk Individual Risk Profile Antecedents of Perceived Risk

17. The way People Perceive Risk differs and so does the outcome and Risk Behavior.

18. 1974 Taylor proposed the relationship between perceived risk, Self-esteem and Anxiety and how it affects an individuals Risk Reduction Strategies. Perceived risk involved with this situation brings about an anxiety-producing situation – individual realizes that something must be accomplished or possessed. This anxiety level is affected by an individual’s level of confidence General Self -Confidence depends on an individual’s personality trait which interacts with unique situations to develop Specific Self-Confidence General Self Esteem Together these two variables affect’s an individual’s anxiety. Specific Self Esteem Perceived Risk Risk Reduction Strategies Anxiety

19. ‘‘[U]ncertainty about the outcome can be reduced by acquiring and handling information. Uncertainty about the consequences can be dealt with by reducing the consequences through reducing the amount at stake (Taylor, 1974) TaylorContd: Acquire and handle information General Self Esteem Personal Non-Personal Specific Self Esteem Reduce amount at stake Perceived Risk Postpone Purchase Least Expensive Product Risk Reduction Strategies Anxiety

20. 1977 Building on what Taylor proposed, William B.Locanderand Peter W. Hermanm showed that anxiety and General Self-Confidence have a minimal effect on consumer risk reduction strategies. Consumer Specific-Self-Confidence was shown to be the significant construct in explaining information search (risk reduction method). It leaves us with a question, if perceived risk is not playing a significant role in affecting risk behavior could there be some other lurking variable?? (Note: They only look at situation where individuals need to reduce anxiety caused by risk as the behavior. General Self Esteem Specific Self Esteem Perceived Risk Risk Reduction Strategies Anxiety

21. 1992 Sitkinand Pablo showed that there are fundamental disagreement over the effect that risk perception can have on risk behavior. Prospect Theory and its proponents support a negative relationship between perceived risk and risk taking behavior. Other scholars have suggested a positive relationship. Inconsistent empirical findings in the relationship between risk perception and risky behavior (i.e., highly risky choices even in highly risky situations) is principally attributable to the omission of risk propensity. Situational Characteristics The results of the four cells suggest that there is a main effect of risk propensity on risk behavior, but there is no main effect for risk perception Positive (low PR) Negative (high PR) Risk Averse RiskPropensity Risk Seeking

22. Using the results from the previous slide they showed that there is a main effect of risk propensity on behavior. However, they also proposed that risk propensity affects perceived risk. A dashed arrow shows that this relationship is suggested by past research, but it is one that appears to be fallacious Risk Propensity Perceived Risk Behavior The main effect of risk propensity on risk behavior might be strengthened as the level of perceived risk rises. These authors do not totally reject the influence of PR on behavior. They suggest that risk perception moderates the effect of risk propensity on risk behavior Note: This relationship is proposed, not tested.

23. Conchar et al. posited that the outcome of perceived risk is propensity towards behavior and not behavior itself. They came up with a framework to explain consumers’ perceived risk processing which had three phases: 2004 Assessment Evaluation Framing Individual Risk Profile In the risk evaluation phase, cognitive and affective factors moderate perceived risk to arrive at risk-taking propensity. Risk Propensity Evalauation Standard Perceived Risk Behavior Authors propose that this model would be affective only in situation where risk is an important consideration and choice is complex

24. 2006 In contrast to Conchar et al., Cho and Lee showed that besides self-efficacy and wealth position, Risk propensity is another key determinant of perceived risk. A decision maker with high risk propensity perceives a lower risk associated with the decision and vice-versa. However, even though their results showed a link between these those factors, they could not verify the cognitive mechanism behind this relationship. Also, its effect on final risk behavior was not tested. Risk Propensity - Perceived Risk Behavior

25. In the last three propositions we see that there is no conformity between researchers view on Consumer Risk Propensity (CRP). 2008 In response, Sharma et al. propose a model where the components of CRP—consumer risk taking attitude, price consciousness, and perceived risk evaluation—stem from the CRP. The CRP in turn influences decision conflict and consumption behavior. Further, by having a direct effect on consumption behavior, decision conflict serves as a partial mediator in the model. Their contention also somewhat conforms to Sigmund Freud’s theory of psychoanalysis. Risk Taking Attitude + + + Perceived Risk Evaluation Risk Propensity Decisional Conflict - + - Price Consciousness Higher-Order CRP model Risk Behavior Note: They looked at airline tickets

26. The inclusion of risk propensity is necessary in linking perceived risk and risk-reducing strategies, since it influences not only behavioral choices facing risk but also the perceived level of risk itself (e.g., Forlani et al., 2002; Keil et al., 2000). Future research is required to understand the relationship between Perceived risk and Risk propensity and how it affects risk behavior. Risk Propensity Risk Information Perceived Risk Risk Behavior ‘Manageable set’ of Alternatives Individual Risk Profile Most models we came across that was tested, was applicable for specific product or service (eg: Cho and Lee- investment behavior., Sharma – airline tickets, etc) Would the behavior differ across different product and service? Perceived Risk Processing is affected by the number of brand information available (Marchal et al. 1995; Moorthy et al. 1997) . It is also affected by the amount of variance in a choice set on different risk dimensions (psychological, social, performance) (Conchar et al, 2004)

27. 1997 A Chaudhuri– Found that there is a significant, positive and strong relationship between negative emotions and perceived risk. However, investigators have not studied how mood effects perceived risk (Fedorikhin and Cole,2004; Dowling, 1986). Negative Emotion Perceived Risk Risk Behavior Positive Emotion Psychology literature shows that moods does effect perceived risk (Nygren, Isen, Taylor and Dulin, 1996). Modern theories in cognitive psychology and neuroscience indicate that there are two fundamental ways in which human beings comprehend risk - analytic system (conscious mind) and experiential system (subconscious mind) Gap: No significant research has been done to understand how Affect level (experiential system) impact the way we perceive and evaluate risk.

28. TIME Risk Propensity AFFECT Static Traits e.g. Risk Affinity, ambiguity intolerance, sensation seeking trait Dynamic Influences e.g. human motives Cultural Factors e.g. risk acculturation Perceived Risk Risk Behavior Individual Risk Profile Future Research H2: Individuals’ risk propensity and perception changes over time as their psychological and situational factors change H1: Positive Affect leads to higher risk behavior H3: Individual Risk Profile mediates the relationship between Perceived risk and Risk Propensity.

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