The manner in which information necessary for decision making is presented can greatly influence how risks are perceived. Consider this example: In a particular case of disaster management, the only options available are provided in 2 different ways to the public for one to be chosen (where lives of 600 people are at stake).
If program A is followed, 200 people will be saved. If Program B is followed, 1/3 probability is 600 people will be saved and 2/3 probability that nobody will be saved.
72% of the target group chose option A and 28% option B
If program A is followed, 400 people will die. If Program B is followed, 1/3 probability is that nobody will die and 2/3 probability that 600 people will die.
This time only 22% of the target group chose option A and 78% option B
1. The option perceived as yielding firm gain will tend to be preferred over those from which gains are perceived as risky or only probable.
2. Option emphasizing firm losses will tend to be avoided in favour of those whose chances of success are perceived as probable.
Secondary Costs of Products
· Cost of products is High, if designed unsafely
· Returns and Warranty Expenses
· Loss of Customer Goodwill
· Cost of litigation
· Loss of Customers due to injuries in using it
· Cost of rework, lost time in attending to design problems
Manufacturer‟s understanding of the risk in a product is necessary:
· To help reduce secondary costs
· To know the possible risk for purposes of pricing, disclaimers, legal terms and conditions, etc.
· To know the cost of reducing the risks
· To take a decision before finalizing the design.
Buyer‟s understanding of the risk in a product is necessary:
· To judge whether he/she wants to take the risks
· To judge whether the „risk vs. costs‟ justifies taking the risk.
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