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We tend to over-estimate the likelihood that big events will happen to us. And, it follows, we tend to over-prepare for such events. This principle applies to both positive and negative events.

For generations, savvy marketers have capitalized on this psychological truism to empty our wallets. Here are a few examples:

Lotteries

On a strictly logical level, most of us understand that it’s extremely unlikely we’re going to win the lottery. And yet, when we buy a ticket, we actually believe we have a real chance of winning!

We’re prepared to pay — in fact to over-pay &mdash for that slice of hope.

Insurance

An entire multi-billion dollar industry relies on this principle. People will pay for protection against the most unlikely things:

  • Volcano damage insurance (when we live nowhere near a volcano)
  • Flood insurance (when we live in a very low-risk area)
  • Flight insurance (even though flying is much safer than driving)
  • Additional flight insurance against a terrorist attack (incredibly unlikely to happen)

Extended Warranties

Extended warranties are actually a type of insurance: we’re buying protection against an expensive repair. And since the covered event is not as unlikely as a plane crash, the premium is much higher!

Extended warranties often cost hundreds of dollars and can add 25% or more to the purchase price. On a logical level, they make no sense whatsoever. Yet for peace of mind, many consumers are persuaded. Once again, they’re over-paying for protection against a big negative event.

The bottom line is that people — including your customers — will pay for the most unlikely things. In particular:

  • They’ll over-pay for protection against terrible events that won’t happen.
  • They’ll over-pay for a chance to get something really wonderful… even though it won’t happen.

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