Security and Prospect Theory

Which choice would you take:

  • 500€ sure gain or a 50% chance of winning 1.000€?

About 85% people will take the sure gain.

Which choice would you take:

  • 500€ sure loss or a 50% chance of loosing 1.000€?

About 70% people will take the risky loss.

This is a result of the economic theory called Prospect Theory. In an article, Bruce Schneier applies it to the problem of selling security products. When faced to purchasing a security product, the customer is in the position of choosing between a sure loss of money (the price of your product) and the risky loss he/she may incur in case of an exploit. The theory shows where the purchase mood will go. He proposes two methods to bias this natural trend:

  •  Increase the feeling of fear which give a feeling of higher probability of the risk
  • Package (hide ?) security with other features that provide a perceived gain.

I would add a third one: Educate your customer. Use real figures and facts. Avoid the fear strategy that is neither ethic neither trustful.

Definitively a must read article. It is available at CIO: How_to_Sell_Security

I have now to read the seminal work of Kahneman and Tversky on Prospect

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