Consumers react by buying less on bad news, but sadly don’t buy more when hearing good, so be mindful of current sentiment!
Nguyena & Claus (2013) Good news, bad news, consumer sentiment and consumption behaviour, Journal of Economic Psychology
Brief contact with a cockroach will usually render a delicious meal inedible. The inverse phenomenon — rendering a pile of cockroaches on a platter edible by contact with one’s favorite food — is unheard of.
Studies suggest that the reason we have this bias is due to the fact that negative events are much rarer than more positive outcomes. As a result, we are expectant of positive events, yet become more attentive of any negative situations that may arise. (e.g., Lewick et al., 1992; Peeters, 1971, 1989; Peeters & Czapinski, 1990). Moreover, positive events, in being more frequent, are also less urgent, and put us in less potential danger.
Daniel Kahneman, in his book Thinking Fast and Slow puts this in a more primal context:
The brains of humans and other animals contain a mechanism that is designed to give priority to bad news. By shaving a few hundredths of a second from the time needed to detect a predator, this circuit improves the animal’s odds of living long enough to reproduce.
Moving from the primal to the financial, most people, if offered a chance to win $150 or lose $100 on a coin toss won’t take the deal. The potential loss, though less than the potential gain by a substantial amount, isn’t worth the risk.
Takeaways for decision-makers
When consumers are faced with a decision crossroad, place a significant amount of emphasis on the positive benefits of a choice, in order to account for the power of the negativity bias. We take more convincing than we think.
Referring to the rather graphic cockroach example, think of the product or service that you offer, and what you should plan for, in order to counteract the cockroaches that might, at some point, crawl onto the plates of your customers. If not handled correctly, one bad moment could ruin an otherwise perfect reputation.