chapter  7
12 Pages

Risk

Researchers have identified two components of risk. The first is the probability of the occurrence of the risk factor (“How likely is it that you will be in an automobile/airplane accident?”). The second is the severity of the consequences of the threat factor (“If you were in an automobile/ airplane accident, how bad is the outcome likely to be?”). The two components are usually multiplied together to form an index of risk. As you can see, two risk factors (automobile versus airplane, for example) with the same multiplicative score could involve very different underpinnings for the nature of the risk. In addition to the two components of risk, Jacoby and Kaplan (1972) have identified five different types of risk: financial, performance, social, pyschological, and physical. Two categories of perceived risk (“inherent” and “handled”) have also been identified in earlier research (Bettman, 1973; Dowling & Staelin, 1994; Lutz & Reilly, 1974). Inherent risk refers to the risk innate in a product class or product choice, whereas handled risk refers to the risk in the buying situation or brand choice within a product class.