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Perceived Risk Processing: Research Stream. CSR 406 Ting-Han Chao Courtney Briggs Atul Todi. Roselius (1971). Taylor (1974). Bauer (1960). Perry&Hamm (1969). Cox (1967). Perceived Risk. Peter & Ryan (1976). Mitchell (1991). Cunningham (1967). Bettman (1973). Cunningham (1967).

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perceived risk processing research stream

Perceived Risk Processing:Research Stream

CSR 406

Ting-Han Chao

Courtney Briggs

AtulTodi

slide2

Roselius (1971)

Taylor (1974)

Bauer (1960)

Perry&Hamm (1969)

Cox (1967)

Perceived Risk

Peter & Ryan (1976)

Mitchell (1991)

Cunningham (1967)

Bettman (1973)

slide3

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”

slide4

Perceived Risk

Uncertainty

Consequences

Performance

social

psychosocial

Cunningham (1967)

Perry&Hamm (1969)

Financial

physical

Roselius (1971)

time

slide5

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

slide6

Bettman (1973)

Perceived Risk

Inherent risk / Handling Risk

Uncertainty

Consequences

Performance

psychosocial

Performance

psychosocial

social

social

Financial

physical

Financial

physical

time

time

inherent risk handling risk
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
slide8

Bettman (1973)

Perceived Risk

Inherent risk / Handling Risk

Uncertainty

Consequences

Performance

psychosocial

Performance

psychosocial

social

social

Financial

physical

Financial

physical

time

time

measuring model two component model
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

1960 bauer
(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

zikmund scott 1974
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

slide12

Toh & Heeren (1982)

Individual Consumer:

Demographics- Age + Gender

Risk Taking Profile

Age

-

Perceived Risk

Gender

Antecedents of Perceived Risk

kinkhan karande 1990 verhage yavas green 1991

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

krueger dickson 1994

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

antecedents of perceived risk

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

slide16

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

slide18

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

slide19

‘‘[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

slide20

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

slide21

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

slide22

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.

slide23

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

slide24

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

slide25

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

slide26

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)

slide27

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.

slide28

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.