Negotiation Technique: Understand Our Perceptions of Gains and Losses | FBI Negotiator Chris Voss
Big Think
2018-06-06
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In 2002, Daniel Kahneman and Amos Tversky won the Nobel Prize in Economics for a behavioral theory they created and refined between 1979 and 1992: prospect theory. It explained how people weigh up risks in decision making, and part of its findings revealed that we are inherently loss averse, meaning we give at least twice as much decision-making weight to the idea of losses than gains. Losing $5, explains former FBI negotiator Chris Voss, feels like losing $10, and the prospect of gaining $5 will feel joyless coompared to the fear of losing $5. This can be leveraged in negotiations simply by pointing out what is going to be lost if a deal isn’t made, or something isn’t done. The “crazy mathematics” we do in our heads isn’t rational, but understanding it will give you an upper hand in your next negotiation. Voss's latest book is Never Split the Difference: Negotiating as if Your Life Depended On It (http://goo.gl/04OgLC)
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Transcript - So I refer to bending reality as understanding how people view losses and gains. And there's Nobel Prize winning behavioral economics theory that says people put a value of losses on at least twice what an equivalent gain is. And that's how people get their valuations distorted. And actually the guys that came up with that theory said that losses are twice as heavy as gains, but then they've unofficially said really it's five to seven times as much, we just wrote down twice as much because we wanted fewer arguments. So losing $5 stings at least twice as much as gaining $5. Losing $5 feels like losing $10 or even $35, it's just a ridiculous skewing in our brains over loss, which is why when you're pitching a gain, if you think that what you're offering is worth $100 and you're only charging $80, well based on prospect theory they're not going to make that exchange, while to us that makes all the sense in the world because it's a gain. But if paying $80 for something it's got to be worth at least $160 for them to want it. I mean it's this crazy math that goes on in our heads over gains and losses. It just is. There's nothing we can do about it. Read Full Transcript Here: https://goo.gl/0790Fb.
Read more at BigThink.com: http://bigthink.com/videos/chris-voss-on-negotiating-using-the-gain-versus-loss-bias
Follow Big Think here:
YouTube: http://goo.gl/CPTsV5
Facebook: https://www.facebook.com/BigThinkdotcom
Twitter: https://twitter.com/bigthink
Transcript - So I refer to bending reality as understanding how people view losses and gains. And there's Nobel Prize winning behavioral economics theory that says people put a value of losses on at least twice what an equivalent gain is. And that's how people get their valuations distorted. And actually the guys that came up with that theory said that losses are twice as heavy as gains, but then they've unofficially said really it's five to seven times as much, we just wrote down twice as much because we wanted fewer arguments. So losing $5 stings at least twice as much as gaining $5. Losing $5 feels like losing $10 or even $35, it's just a ridiculous skewing in our brains over loss, which is why when you're pitching a gain, if you think that what you're offering is worth $100 and you're only charging $80, well based on prospect theory they're not going to make that exchange, while to us that makes all the sense in the world because it's a gain. But if paying $80 for something it's got to be worth at least $160 for them to want it. I mean it's this crazy math that goes on in our heads over gains and losses. It just is. There's nothing we can do about it. Read Full Transcript Here: https://goo.gl/0790Fb.
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