What it is
Zero risk bias refers to our tendency to opt for complete risk elimination, sometimes over an alternative that actually offers greater overall predicted outcomes.
Why it happens
Choices with zero risk offer certainty, which the brain seeks to maximize in order to reduce cognitive strain. Additionally, losses loom larger than gains, and the prospect of a loss drives us to eschew that possibility even if it leads to a suboptimal choice.
Example 1 – Allais Paradox
Maurice Allais presented participants with two choices: the first option was a guaranteed jackpot while the second, though it had a greater expected value, carried a 1% of not winning anything at all. When presented with this choice set, people tend to opt for the first option with zero risk, despite it having a lower expected value.
Example 2 – The money back guarantee
This all too familiar marketing hook plays to consumer worries over the risk of not being satisfied with a product. By eliminating such a risk, consumers are more likely to buy.
How to avoid it
It can help to review your goal in making a decision. Is your goal overall risk reduction? Or does completely eliminating risk carry more value? Monitoring your emotion to see if it’s leading you astray from your decision-making goals can sometimes help mitigate the zero risk bias.