Become a Smarter Negotiator By Using Prospect Theory

Want to make someone an offer they can't refuse? Understand how our minds are hung up on loss aversion, says former FBI negotiator Chris Voss.

Chris Voss:  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.

So understanding that, first of all when I began to use an accusations audit to try to diminish those fears of lost, it gets a person back more into even gains. And then I realize that people are more likely to do things to avoid losses. In a negotiation all I have to point out is what's actually going to be lost if this isn't done. In some ways in a business world a reverse of this is what I call taking people hostage to the future. If I can convince you that if you do all this work for me for nothing that all this business will come your way as a result, which is actually what's done a lot in the business community. Come and do this business for us at a cut rate and we'll introduce you to all this business and you'll be fabulously wealthy as a result of our referrals. Well, if you buy into getting all that money for those referrals now you're being taken hostage to the future and you'll do the business for nothing because you're afraid of losing those referrals. That's pretty common. And after a while people tend to catch on to it.

The much wiser approach is for me to simply point out how not doing this deal is in fact costing you every day. If you do nothing you lose. If you don't address this issue it's going to cost to you. So when the status quo becomes a loss then people are more likely to make a decision to make a move because of prospect theory, just the fear of loss in our head is huge.

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. Chris Voss's book is Never Split the Difference: Negotiating as if Your Life Depended On It.


Chris Voss's book is Never Split the Difference: Negotiating as if Your Life Depended On It.

The strange case of the dead-but-not-dead Tibetan monks

For some reason, the bodies of deceased monks stay "fresh" for a long time.

Credit: MICHEL/Adobe Stock
Surprising Science
  • The bodies of some Tibetan monks remain "fresh" after what appears to be their death.
  • Their fellow monks say they're not dead yet but in a deep, final meditative state called "thukdam."
  • Science has not found any evidence of lingering EEG activity after death in thukdam monks.
  • Keep reading Show less

    What do Olympic gymnasts and star-forming clouds have in common?

    When Olympic athletes perform dazzling feats of athletic prowess, they are using the same principles of physics that gave birth to stars and planets.

    Credit: sportpoint via Adobe Stock
    13-8
    • Much of the beauty of gymnastics comes from the physics principle called the conservation of angular momentum.
    • Conservation of angular momentum tells us that when a spinning object changes how its matter is distributed, it changes its rate of spin.
    • Conservation of angular momentum links the formation of planets in star-forming clouds to the beauty of a gymnast's spinning dismount from the uneven bars.
    Keep reading Show less

    3,000-pound Triceratops skull unearthed in South Dakota

    "You dream about these kinds of moments when you're a kid," said lead paleontologist David Schmidt.

    Credit: David Schmidt / Westminster College
    Surprising Science
    • The triceratops skull was first discovered in 2019, but was excavated over the summer of 2020.
    • It was discovered in the South Dakota Badlands, an area where the Triceratops roamed some 66 million years ago.
    • Studying dinosaurs helps scientists better understand the evolution of all life on Earth.
    Keep reading Show less

    Of spies and wars: the secret history of tea

    How the British obsession with tea triggered wars, led to bizarre espionage, and changed the world — many times.

    Credit: Content Pixie via Unsplash
    Culture & Religion
    • Today, tea is the single most popular drink worldwide, with a global market that outstrips all the nearest rivals combined.
    • The British Empire went to war over tea, ultimately losing its American colonies and twice beating the Chinese in the "Opium Wars."
    • The British desire to secure homegrown tea resulted in their sending botanist Robert Fortune on a Hollywood-worthy mission to secure Chinese tea plants and steal horticultural secrets.
    Keep reading Show less
    Quantcast