A new study has pointed out that people prefer to hear good news and bad news separately rather than combining the messages in a statement such as "I have some good news and some bad news".
In the study, Peter Jarnebrant of the European School of Management and Technology and Olivier Toubia and Eric Johnson of Columbia University asked how people's choices change when they are presented with information in either of two ways: as an integrated whole or as two segregated pieces.
AdvertisementThe authors followed upon work first done by RH Thaler in 1985.
"Thaler's intuition was that decision makers would prefer to mentally separate a small gain from a big loss, thus providing a silver lining to the loss," explains Prof. Olivier Toubia, one of the authors.
This study provides new tests to the original assumptions.
The authors also tested to determine the threshold balance - for example, if subjects also prefer the information divided when there is a more even, 50/50 split in gain and loss.
The authors determined that the smaller the positive amount and the larger the negative one, the more people prefer that the information be presented in separate sections rather than summed together.
"When the loss gets larger, you're more likely to want to separate a small gain from that loss," Toubia said.
This perception plays better with customers who are less loss averse, they determined.
The researchers said that this observation is important for decision makers in finance, retailing, and other organizations.
The study appears in the current issue of Management Science, the flagship journal of the Institute for Operations Research and the Management Sciences (INFORMS).
You May Also Like