Risk Assessment: The Consumer as an Intuitive Statistician - Innovation and Marketing in the Pharmaceutical Industry - page 283

Chapter 10
Risk Assessment: The Consumer
as an Intuitive Statistician

Priya Raghubir and Robert Latimer

Abstract The authors present an overview of academic research on risk assessment.
Consumers assess risk as though they were intuitive statisticians, combining two
distinct processes to arrive at their perceptions of risk. With the bottom-up process,
consumers rely on specific, individual-level risk factors. With the top-down process,
consumers rely on the overall prevalence or “base rate” of a risk. Both processes may
lead to over- or underestimation of actual risk, but the biases in each process stem
from different sources. These sources of bias may be reduced or eliminated by imple-
menting matching de-biasing techniques. Properly applied, de-biasing techniques
may mitigate the negative consequences of over- or underestimation of risk.

10.1 Introduction

How do consumers assess their own and others' risk? Are their risk estimates biased
upwards or downwards, merely inaccurate, or normative? How do biases in under-
estimating or overestimating risk affect consumers' behavior, and what are the
implications of under- or overestimation of risk on pharmaceutical companies, med-
ical establishments, the economy, and society in general? And why does knowing
how consumers assess risk affect the manner in which companies, public policy
officials, and consumer welfare groups can improve the accuracy of risk estimation
and de-bias under- or overestimates of risk. That is, we suggest that what pharma-
ceutical companies and other parties do to help consumers assess risk will be
differentially effective depending on their knowledge of whether risk was appropri-
ately estimated, what was the direction of the bias in estimation, if any, and what the
process used to arrive at the risk estimate was.

P. Raghubir ( * ) • R. Latimer
Stern School of Business, New York University, New York, NY 10012, USA
e-mail: [e-mail]; [e-mail]