This paper analyzes consumer, retailer and manufacturer preferences for use of two important risk reduction tools: money-back guarantees and demonstrations. Theoretical findings from economics, marketing, consumer behavior and psychology are integrated to analyze the performance of these mechanisms under various conditions and product characteristics. The paper investigates the relationship between these two risk reduction mechanisms and reveals in which ways the two are complements or substitutes, identifying under which conditions money-back guarantees and demonstrations will be used separately, together, or not at all.
Bibliographical noteFunding Information:
The authors acknowledge the financial support of the Israeli Academy of Science for this paper.
- Learning risk
- Money-back guarantees