Question

how does firm giving free trials with their products link to prospect theory and loss aversion.

Answer 1

The losses and gains are assessed differently, so users make decisions based on perceived gains rather than perceived losses.

For example, most people prefer to be sure to win $50 instead of making a risky bet in which they can flip a coin and either win $100 or nothing.
Prospect theory also describes three prejudices that people use while making decisions:

Certainty: This is when people choose to have some overweight choices and risk gains avers.

Isolation effect: Refers to the propensity of people to act on knowledge that stands out and varies from the others.

Loss aversion: When people choose to prevent losses to achieve equal benefits

Loss avoidance is one of the reasons we always see the phrases in marketing campaigns like "last chance" or "hurry."Now, there are few ways to use this principle of behavior without being pushy For example: You might integrate fear of losing out by generating urgency and scarcity Topman is a perfect example of how e-commerce stores can introduce this kind of bias on product landing pages. Offer free, time-limited trials of your products or services. Some tech firms, for example, use this to their benefit.

Free trial periods. Companies can exploit loss avoidance by providing free trial periods. If a customer has the commodity, it is a lot more likely to give up something to which he has become accustomed. For example, a supermarket might offer a free month trial for free delivery – once we get used to buying food freely, we don't want to give up because we're willing to pay.

There are some growing prejudices in people making decisions.Understanding those prejudices will help you persuade them to act. Though prospect theory factors emerged as a descriptive model, it does not offer any psychological explanations for the processes stated in it. In addition, the model did not include variables that are equally important to decision-making processes, such as emotion.