Risk Management in Consumers' Credit Decision Making

Abstract

Summary: A study is described of the risk management strategies employed by consumers who have made a purchase by credit. Realistic scenarios involving the purchase of consumer durables were used and adults with a variety of occupations and a range of experience of credit participated (N = 96). They were presented with minimal descriptions of alternative credit offers and an option to buy insurance to cover repayment difficulties due to job loss or illness. Participants could request any information required while deciding, and afterwards they summarized how they had reached their decision. Verbal protocols for the repayment insurance decision were generally consistent with a revised version of Huber's (1997) model of risk management. In this two-dimensional threshold model, if a risk exceeds both a loss probability and a loss value threshold, risk defusing operators are activated. Some strategies not consistent with the model were also observed, either involving more complex compensatory thinking, or simply anticipating and bearing the risk. Finally, previous experience and emotional responses were found to be associated with risk management behaviour.

Risk-Specific Search for Risk-Defusing Operators

“…For example, prior experience with negative events such as flooding is related to the intention to buy natural catastrophe insurance (Kunreuther et al, 1978; Zaleskiewicz, Piskorz, & Borkowska, 2002). Ranyard, Hinkley, and Williamson (2001) found that risk management strategies in buying consumables using credit depended on prior experience and emotional reactions. We expected statements concerning specific background knowledge and prior experience to be important elements for the decision maker.…”