1. How Can Risk Be used in Advertising?
Prepared by J. Scott Armstrong (details on him at jscottarmstrong.com).
Please inform Scott about errors and also make suggestions (armstrong@wharton.upenn.edu)
Scott has taken these slides from adprin.com, a site that he founded. That site contains interactive versions of these
slides, along with linked references, videos, and webcasts, all in PPT and PPTX format that you can download.

2. Risky Business
What would you rather receive?
___ a) $500 for sure or
___ b) a 15% chance to receive $1,000,000 (and an
85% chance to receive nothing)?
See the next slide for what many students chose
2

3. Frederick (2005) asked students at various U.S. universities.
About half of the students chose $500.
The expected value of the second offer is $150,000.
Customers prefer product-satisfaction guarantees (Persuasive Advertising p 40-1)
To reduce customer risk, use a
product satisfaction guarantee (Principle 1.3.6)
This has long been known to advertisers, although the
power has likely been under-estimated.
However, as a consumer, you should realize that some
sellers are aware of this and they know that that can
charge enormous fees to reduce risk, so you may want to
decline and “self-insure.”

4. Based on this exercise, write a small application step for yourself,
and set a deadline, preferably within one week. If you are
working with someone else, share your application plan and the
results of your application.
For example, provide a product-satisfaction guarantee that
you could put in an ad.
If you are trying to sell something, consider how you can
reduce the risk for the buyer. They are likely be willing to pay
a substantial amount for the risk reduction.
Adapted from AdPrin.com