The way risk is presented can make some products appear less risky and more attractive, according to research by the London Business School.
The study of 3,000 people recommended isolating key issues rather than providing a full list of risk factors to help clients understand the hazards associated with a particular product.
The research explored the responses of 3,059 people in direct-to-consumer advertising for medications in the US where each specific side effect must be listed.
These investigations examined situations where medication had a chance of causing a variety of complications ranging in severity from life-threatening to comparatively trivial.
The authors compared consumers’ reactions to adverts that included both serious and non-serious adverse risks with consumers’ responses to adverts where only the serious risks were shown.
The research consistently showed that when the adverts for medicines covered all side effects, people rated them to be less risky and so of greater appeal than when trivial side-effects were excluded.
This is what the researchers have called the "argument dilution effect" whereby the weak side effects, dilute away from the strong side effects.
Niro Sivanathan, associate professor at London Business School, who led the research, said: "Paradoxically, we found evidence that when a long list of risks were provided, typically mixing trivial with serious factors, individuals’ judgement of the overall risk was diluted and it even helped the marketability of the product.
"In our studies, consumers’ reduced judgement meant they perceived these products as more appealing, more effective and were even willing to pay more for such items.
“This suggests that the very laudable desire for transparency is inadvertently counter-productive. So to help consumers accurately process information, the old adage of ‘less is more’ holds true.
“Therefore, when communicating risk associated with complex financial products – for example, pensions, endowments, loans, mortgages, personal contract plans and so on – individuals can more readily grasp the real risk if the serious factors are identified and separated from the more minor concerns.
"This approach nudges people’s attention to the salient issues while also covering minor factors and hence fulfilling the need for transparency."
Dr Sivanathan said the research has important implications for the UK financial services industry since the sector emphasises the need for transparency when trying to explain complex information regarding risk to consumers.
damian.fantato@ft.com
