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What role does cognitive bias play in negotiation? What biases have the greatest impact on your and your counterpart’s decision-making?
In negotiation, cognitive bias plays a crucial role in how we receive information and determine our best interests. And as a skilled negotiator, you can take advantage of universal human cognitive biases to frame your position in a way that makes it optimally attractive to your counterpart.
In this article, we’ll discuss how to use two cognitive biases (the framing effect and the loss aversion bias) to steer a negotiation in your desired direction.
Chris Voss on Cognitive Bias in Negotiation
In his book Never Split the Difference, former FBI negotiator Chriss Voss writes that you need to figure out what your counterpart’s true, underlying need is and then frame your position such that it satisfies that need. To do so, you can take advantage of their cognitive biases: mental errors in routine information processing that impact how we react to situations and form judgments.
Voss notes that advertisers understand this principle well. The products and services we purchase are usually presented to us as satisfying some deeper, more intrinsic need. When someone purchases a home-security system, they’re not really purchasing the sensor, door chimes, cameras, or home-automation technology. Instead, what they’re really buying is the peace of mind that comes with believing that their home and family are safe. That’s why advertisements for these products emphasize the emotional benefits of being able to enjoy normal life without having to think about your family being harmed or your possessions being stolen.
Similarly, Voss notes that makers of luxury products like sports cars and jewelry don’t emphasize the technical features of the vehicle or the gemological specifics of the diamond ring they’re trying to sell. Instead, they highlight the exclusivity and rarity of these goods. They do this because they know that their customers are largely driven by the need to assert their status through owning and displaying these products, which satisfies a deeper need to feel superior to others.
(Shortform note: Economists call status symbol goods like jewelry, fine champagnes, or designer jewelry Veblen goods—named for the economist Thorstein Veblen, who famously explored the phenomenon of conspicuous consumption among economic elites in 1899’s The Theory of the Leisure Class. Veblen goods differ from ordinary goods in that demand for them tends to increase as their price increases. As they become more expensive, fewer people can afford to buy them, which makes them rare. For people who wish to own such rare items to highlight their elite status, this rarity and exclusivity is precisely what makes them valuable.)
The same principle applies to your negotiating position, argues Voss. How you frame your position or offer matters just as much—if not more than—the actual substance of the position itself.
Cognitive Bias #1: The Framing Effect
The first cognitive bias in negotiation Voss points to is what’s known as the framing effect. People respond differently to identical choices based solely on how they’re presented. For example, the framing effect would make health-conscious consumers more likely to purchase milk when it’s marketed as being “99% fat-free” versus “1% fat”, believing that the first option is less fatty (even though, of course, there’s no difference between either product other than how the label positions them).
(Shortform note: A variant on the framing effect is what’s known as the valence-framing effect. Research has shown that people hold their negative opinions—in other words, what they’re against—much more strongly and confidently than their positive opinions—what they’re in favor of. In other words, we seem to dislike what we dislike more than we like what we like. In one social psychology experiment, participants who expressed a preference for fictional political candidate A over candidate B showed a notable division in how they responded to information that their preferred candidate had engaged in corruption. Those who supported candidate A because they were pro-candidate A were more willing to abandon their support in light of this information; those who favored A because they were anti-candidate B were far more likely to dismiss the corruption allegations and even double down on their support for A.)
Cognitive Bias #2: Loss Aversion
Closely related to the framing effect is the principle of loss aversion. Loss aversion makes people fear an equal loss more than they value an equal gain. Voss observes that salespeople are skillful manipulators of the loss aversion principle. When they say things like, “I just wanted to give you the opportunity to take advantage of this offer before it goes away, ” they’re creating a (usually false) feeling of urgency that triggers your sense of loss aversion. When something is framed this way, you’re no longer thinking of gaining something—you’re thinking about losing out on a potential deal.
Knowing this, you can put yourself in a strong negotiating position by framing your preferred solution as one that prevents your counterpart from incurring a loss.
For example, if you’re making an offer on a house that needs some work, you might say something like, “The house is great but it definitely needs significant contracting work. There’s foundational damage, and the gas line for the grill is too close to the house to pass inspection. I’m willing to pay cash now and absorb those costs so you don’t have to shell out that money. Plus, I’m willing to waive inspection. But if we take too long and end up having to go through inspection, I might have to start looking for other deals.”
| Loss Aversion and the “Scarcity Principle” In Influence, author Robert Cialdini argues that loss aversion is closely tied to an idea called the Scarcity Principle. The Scarcity Principle makes things with limited availability more appealing to us. Thus, rare goods are expensive and abundant items are cheap (like how gold is more valuable than iron). We’re more compelled to buy these goods because we instinctively fear that we’ll lose our opportunity if we don’t act immediately. Cialdini notes that sales professionals are skilled in using this principle to their advantage. It’s why we see so many “limited-time only” or “first-come, first-serve” sales pitches: The goal is to drive you the buyer into a loss-aversion frenzy that forces you to suspend your better judgement and rush headlong into an ill-considered decision. Knowing this, you can use the principle to your advantage by making your counterpart feel your offer has an element of scarcity built in. |
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Here's what you'll find in our full Never Split the Difference summary :
- Lessons learned from years as an FBI hostage negotiator
- Why negotiation is about emotional appeals, not rational ones
- The 5 methods for tactical empathy, which gets you what you want by focusing on the other person's feelings
