The Hindu Business Line : Of restaurants, soap and risk

Consider this. Our friend once found the kitchen in his neighbourhood restaurant untidy. Since that day, he has been visiting another restaurant. He does not know if the kitchen in this restaurant is clean. Yet, he prefers to go there though the other restaurant draws more customers. Our friend's behaviour is not unusual. Most of us behave the same way because our perception of risk is often incorrect. Why?

Perception of risk

Risk is the likelihood of an adverse event happening to us. When you visit a restaurant, the risk is that you may suffer from stomach poison because of bad food. That risk is based on the how many people have fallen sick because of eating at the restaurant. We may not know this number. But if the restaurant is always crowded, we can presume that the food is not bad.

Yet, my friend preferred to go to a restaurant that was less patronised. Why? His perception of risk was magnified when he saw the untidy kitchen at the other restaurant. He has been unable to perceive the risk from eating in the restaurant that he now frequents because he did not know how the kitchen is maintained. What the eye does not see, the mind cannot perceive.

Life insurance

We make financial decisions the same way. You may purchase mobile phone insurance because you lose your phone much too often! But how often have you pondered on taking a life insurance? Is not your life more valuable than your phone? We make unwise economic decisions because our perception of risk is often wrong. Just like my friend who visits this restaurant where the food tastes like soap, perhaps, because the kitchen is always cleaned with it!

(The author is based in Surrey, BC, Canada.)

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