Nudge theory in negotiations

Research: An offer’s chance of success is heavily influenced by how you frame it.

by Adam Gale
Last Updated: 27 Jul 2020

Anyone who has ever taken part in a negotiation will know that it is not a precise science, if a science at all. Human beings are not coldly rational and self-interested, at least in a uniformly predictable way. Even if we were, we’re not omniscient - and with imperfect information come imperfect decisions.

Enter behavioural economics, which attempts to reconcile our many biases and irrationalities with the homo economicus of the textbooks. 

Of particular interest, when it comes to negotiation tactics, is Richard Thaler and Cass Sunstein’s ‘nudge theory’, which suggests ways of making a proposal more agreeable by exploiting the other side’s unconscious thought processes.

For example, new research published in the Journal of Experimental Social Psychology looks at how framing an offer in terms of the minimum acceptable sale price can improve the chances of a favourable deal.

A group led by Martin Schweinsberg, assistant professor of organisational behaviour at ESMT Berlin, paired off 1,500 participants in the roles of buyers and sellers of a condo. Some buyers were instructed to make a simple offer, others to compare that offer with the seller’s target price, and others to compare it with the seller’s minimum price. 

They found that those comparing the offer to the minimum price achieved significantly more success in the negotiation. 

“Imagine trying to buy a condo where the seller’s target price is $580,000 and their minimum price is $320,000. Instead of just saying 'my offer for the house is $450,000', adding the sentence ‘how does this compare with the minimum price you are willing to accept?’ increased the chances of the buyer’s offer being accepted, and made the counterpart happier,” said Schweinsberg.

“This demonstrates that how an offer is perceived is subjective depending on how the offer is framed and that it is possible for a negotiation to be nudged to have a ‘win-win’ outcome.”

The researchers suggest that this framing not only makes the offer seem comparatively favourable, but also improves your relationship with the seller - important, considering that being too successful in a single negotiation may be very detrimental to long-term commercial relationships, especially if the ‘losing side’ thinks they’ve been manipulated or nudged. (No one wants to be fleeced, whether by behavioural economists or otherwise.)

Interestingly, the research also found that if a seller has a better offer on the table, the minimum price framing approach tends to backfire. The first rule of negotiation remains to do your homework.

Image credit: Thierry Monasse/Getty Images

Tags:

Find this article useful?

Get more great articles like this in your inbox every lunchtime

How to host a virtual work Xmas party

It’s beginning to look at a lot like a video call Christmas.

Should you bin your frequent flyer card?

Management Today asks leaders if business trip culture is gone for good.

3 reasons your team isn’t innovating

Your ‘big idea’ cupboard is empty. Here’s how to fix it.

5 questions left unanswered by Sunak's spending review

Business leaders still need answers from the chancellor.

The CEO’s bookshelf: Maya Angelou, Mary Portas and Russell Brand

Neuro-Insight CEO Shazia Ginai shares her book and podcast recommendations for leaders.

Dominic Cummings & the importance of belonging

The PM's departed special adviser presents certain business lessons, whether he intended to or not,...