Consumer Behavior and Risk Perception: A Study on Valuation of Risky Factors

This article discusses the impact of risk perception on the valuation of risky factors. It highlights how customers view much riskier options as less risky and vice-versa. The findings of this article can be applied to the real-life organization of Bank of America.

Running head: CONSUMER BEHAVIOR
Consumer behavior
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1CONSUMER BEHAVIOR
In the article ‘risk (mis) perception: when greater risk reduces risk valuation’, Khan &
Kupor (2016) mentioned that the value of a risky factor decreases by adding another similar
factor containing the same value. In this respect, the instance of medical drug was considered. It
has the probable after effect of convulsion, which is regarded as less risky along with other
impacts. These side effects include exhaustion and obstruction. On the other hand, the travel
insurance that covers severe risks and injury is considered less expensive even though it covers
negligible illness. Another instance in this respect can be a lottery that provides a chance to win
an Apple iPhone becomes negligible when it also offers token gifts.
When light is shed on the discussion, it can be found out that the customers or consumers
can normally view much riskier options as less risky and vice- versa. This is a common trend
observed among the customers on a wide range. They have grown this trend because people have
a belief that the probability of smaller aspects is more than larger aspects. Hence, the likeliness
of smaller aspects reduces the actual value of the risky factor. This effect is only applicable when
smaller prospects are added to larger prospects and it is not the other way round. It occurs when
the aspects are probabilistic in nature. The effect is moderated with cognitive burden and
emotions of personal control.
The findings of this article can be applied to the real- life organization of Bank of
America. This organization is the most significant instance of what could go wrong with a
project. This huge bank decided to change its operational structure by imposing a charge of $5
each month in 2012 so that they could access their funds with the use of debit cards. They had
the least idea that it would counter them in a worse manner. The financial integration was
expected to satisfy the annoyed customers and change their mind from switching to other banks.
However, it became a big mistake on the part of the bank to think differently. The two

2CONSUMER BEHAVIOR
campaigns ‘Dump your bank day’ and ‘Bank transfer day’ initially started with the protest of the
customers against the charge of debit card (Bank of America, 2018).
When the new charge was announced, a survey was conducted to check people reaction
where they were ready to dump Bank of America. This became a serious risk factor in the history
of the organization. The bank tried to look on the bigger aspects; rather they got the backlash of
the smaller aspects. It can be recommended in this respect that the bank needed immediate risk
management to pacify the customers. They could soon announce for a scheme that would benefit
the customers such as zero balance account or unlimited withdrawal of money. It would help
them in gaining their lost reputation in the market and prevent customer turnover.

3CONSUMER BEHAVIOR
References
Bank of America. (2018). Bank of America - Banking, Credit Cards, Home Loans and Auto
Loans. [online] Available at: https://www.bankofamerica.com/ [Accessed 18 Apr. 2018].
Khan, U., & Kupor, D. M. (2016). Risk (mis) perception: when greater risk reduces risk
valuation. Journal of Consumer Research, 43(5), 769-786.
Bibliography
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