Make use of psychology when communicating with potential customers by recognizing and employing certain psychological strategies:
- Anchoring effect: In a presentation or conversation, the anchoring effect occurs when information is gauged against the first information presented.
- Loss aversion: People who experience loss aversion are often more concerned about losing an asset or benefit than acquiring a new one.
- Curse of knowledge: This phenomenon occurs when someone with deep subject knowledge cannot understand how little another person understands.
- Confirmation bias: With confirmation bias, people are much more likely to agree with and believe something that matches their beliefs, even if there’s evidence or proof of the opposite.
Let’s dig in deeper!
Anchoring:
An anchoring effect is a cognitive bias that describes the tendency to make decisions based on the first piece of information presented (the “anchor”). When people make decisions, anchoring occurs when they use a piece of information to make subsequent judgments. When an anchor is set, other judgments are made by adjusting away from it, and other information is interpreted around it. The initial price offered for a used car sets the benchmark for the rest of the negotiations, so even if the price is lower than the original price, it seems more reasonable.
There is often an anchoring effect in negotiations, but goal setting can influence the outcome. Negotiation scholars Deborah Zetik and Alice Stuhlmacher of DePaul University found in their review of goal setting research that negotiators who set specific, challenging goals consistently outperform those who do not. The performance of negotiators improves when they are rewarded for reaching a goal, such as a $10,000 bonus for billing 2,000 hours. The performance of even an unrewarded goal, such as running five miles today, can be boosted.
Nevertheless, setting ambitious negotiation goals can have several drawbacks. You may be dissatisfied with the overall outcome if you do not accomplish your goal. Researchers Adam Galinsky, Victoria Medvec, and Thomas Mussweiler found in one study that negotiators who focused on high goals achieved objectively better outcomes than peers who did not focus on high goals, but the high-achieving negotiators were less satisfied with their outcomes.
It is noteworthy that when these high-achieving participants were asked to consider their reservation prices (walk-away points) and then evaluate their outcomes, their satisfaction matched objective measures. What is the lesson here? During the negotiation, focus on your ambitious goal in order to maximize your results. Compare your outcome with your reservation price after the negotiation to enhance your satisfaction (or your boss’s).
Committing to your goal by limiting future flexibility (such as publicly announcing a low purchase price in advance) may leave you with an unattractive alternative or impasse. In addition to developing a reputation for toughness, aggressive commitment strategies are most effective when used with people likely to make large concessions under pressure.
Loss aversion
The things that we own are very important to us, and we do not want to lose them. It is very common for us to become extremely attached to the things we have in our possession, and we feel unable to let them go. We are more vulnerable when we have more. Wealth implies that we have more to lose than to gain. Emotion regulation, such as taking a different perspective, can reduce loss aversion and help people overcome potentially disadvantageous decision biases.
Is there a reason we are so afraid of losing? Loss aversion is one of our strongest emotions. Anxiety and fear play a crucial role in the aversive response to losses (Rick, 2011). Loss aversion is an expression of fear. We tend to focus more on setbacks than progress because of this. A negative emotion, such as receiving criticism, has a stronger impact than a positive one, such as receiving praise. Everybody feels blame more acutely than praise, according to Charles Darwin.
It makes us more upset to lose $10 than to find $10. It makes us more upset to lose $10 than to find $10. This is why in marital interactions it generally takes at least five kind comments to offset for one critical comment (Baumeister et al, 2001).
When it comes to purchasing decisions, consumers show loss aversion. Consumers are more responsive to price increases than price decreases, according to research. In the period from July 1981 to July 1983, a ten percent increase in egg prices resulted in a 7.8% decrease in demand, while a ten percent decrease in prices resulted in a 3.3 percent increase in demand (Putler, 1992).
We don’t like to lose things that we own. It is common for us to become extremely attached to the objects in our possession, and to feel anxious to part with them. Our vulnerability increases as we accumulate more possessions. Having accumulated wealth implies that we have more to lose than to gain. Emotion regulation, such as taking a different perspective, can reduce loss aversion and help people overcome potentially disadvantageous decision biases.
Is there a reason why we are so afraid of losing? Loss aversion is a strong emotion. As Rick (2011) points out, negative emotions (anxiety and fear) play a critical role in the aversive response to losses. In other words, loss aversion is an expression of fear. Our tendency is to focus on setbacks rather than progress explains why we tend to focus on setbacks. Criticism, for example, has a greater impact than praise, for example. Everybody feels blame more acutely than praise, according to Charles Darwin.
We are more upset about losing $10 than we are happy about finding $10. A loss hurts about twice as much as a gain (Khaneman, 2011). According to Baumeister et al. (2001), five kind comments generally counterbalance one critical comment in marital interactions.
The idea of loss aversion is shown in consumer behavior consumer. When prices increase, consumers are more responsive than when they decrease. During the period July 1981 to July 1983, a 10 percent increase in egg prices resulted in a 7.8 percent decrease in demand, while a 10 percent decrease in price led to a 3.3 percent increase in demand (Putler, 1992).
Our views of mate value also change as we spend more time together. Regardless of how unhappy we are, the longer we spend with our mates, the harder it is to simply let go.
In a nutshell, loss aversion is an important aspect of everyday economic life. Unless there is a good reason to change, people tend to stick with what they have. People are resistant to change due to a general bias in human psychology (status quo bias). When we think about change, we tend to focus more on what we might lose than on what we might gain.
Curse of knowledge:
In 1990, a Stanford University graduate student in psychology named Elizabeth Newton illustrated the curse of knowledge by studying a simple game in which she assigned people to one of two roles: “tapper” or “listener.” Tappers were required to pick a well-known song, such as “Happy Birthday,” and perform the rhythm on a table. Guessing the song was the listener’s job.
Over the course of Newton’s experiment, 120 songs were tapped out. Only three songs were correctly guessed by listeners: a 2.5% success rate. But before they guessed, Newton asked the tappers to predict the likelihood that listeners would get it right. The prediction was 50%. There was one time in 40 when the tappers got their message across, but they thought it would be one in two times. Exactly why?
A tapper cannot avoid hearing the tune playing along to her taps when she taps. During this time, all the listener can hear is a kind of bizarre Morse code. Even so, the tappers were surprised at how hard it was for the listeners to pick up the tune.
Once we know something-say, the melody of a song-we find it hard to imagine not knowing it. Knowledge has cursed us. Because we can’t readily recreate their state of mind, we have difficulty sharing it with others.
Like tappers and listeners, managers and employees, marketers and customers, corporate headquarters and the front line depend on ongoing communication, but suffer from enormous information imbalances.
“Translating” leaders’ strategies into concrete language can thwart the curse of knowledge. This is the abstract umbrella statement of Trader Joe’s, a specialty food chain whose mission is to “provide our customers with the best food and beverage values and information to make informed buying decisions.” It is difficult to differentiate Trader Joe’s from other retailers with that statement. In contrast to Wal-Mart, Trader Joe’s offers an array of inexpensive but exotic foodstuffs like Moroccan simmer sauce and red pepper soup.
By using concrete language elsewhere, Trader Joe’s beats the curse of knowledge and gives meaning to its strategy. It touts its reputation as the “home of cheap thrills,” describing its target customer as an “unemployed college professor who drives a very, very used Volvo.” Of course, the image is a simplification; there are probably zero of these “target customers” at any given moment. Although the description simplifies a complex reality, it ensures that all employees of the organization have a common understanding of the customers. Is the red-pepper soup to the professor’s liking? In fact, yes.
We use concrete language when telling stories, which helps us avoid the curse of knowledge. For example, FedEx uses a story related to its Purple Promise award, which recognizes employees who uphold FedEx’s promise that packages will “absolutely, positively” arrive overnight: in New York, a FedEx delivery truck broke down and the replacement van was running late. Initially, the driver delivered a few packages on foot. But then, desperate to finish her route on time, she persuaded a competitor’s driver to drive her home.
This is a tangible demonstration of the company’s strategic aim to be the most reliable shipping company on the planet. The New York story can serve as a guide to behavior for new delivery drivers: “My job is not to drive a route and go home at 5 PM; my job is to get packages delivered as soon as possible.”
Stories and concrete language defeat the curse of knowledge and make executives’ strategy statements more memorable. Consequently, all members of an organization can understand the strategies and communicate about them in the same language.
Confirmation bias:
If you have tried to reach a friend with whom you have an ambivalent relationship by phone or email, but did not hear back from them, imagine what it would feel like. It is easy to jump to conclusions intuitively that your friend wants to avoid you in a situation like this. You risk acting as though this belief is true if you leave this belief unchecked.
Desire directly influences beliefs, resulting in Confirmation Bias. People believe something because they want it to be true. Wishful thinking motivates them. When evidence gathered so far confirms one’s views or prejudices, the individual stops gathering information.
Information that confirms a view is embraced while information that casts doubt on it is ignored or rejected. We don’t perceive circumstances objectively due to confirmation bias. As a result of our prejudices, we pick out the data that confirms our feelings. As a result, we may become prisoners of our assumptions. Many people will dismiss any claims that marijuana may cause harm as nothing more than old-fashioned reefer madness. In some conservative circles, any evidence that marijuana is not harmful is downplayed.
The confirmation bias is also present in anxious individuals who perceive the world as dangerous. A person with low self-esteem is highly sensitive to being ignored by others, and he or she constantly monitors for signs of rejection. Consequently, if you are worried that someone is annoyed with you, you are biased toward all the negative information about how they treat you. Neutral behavior is interpreted negatively by you.
A form of self-deception, such as false optimism, is wishful thinking. In the same way, we often deceive ourselves, saying things such as: just this one; it’s not that fattening; I’ll quit smoking tomorrow. When someone is “under the influence,” they feel confident that they can drive safely even after drinking three or four drinks.
Self-deception can be like a drug, numbing you to harsh reality or turning a blind eye to the hard task of gathering evidence. In some instances, self-deception is beneficial, as Voltaire said long ago. Positive thinking may actually be beneficial when dealing with certain illnesses, such as cancer, but not when dealing with diabetes or ulcers. It has been shown that believing you will recover reduces stress hormones, allowing the immune system and modern medicine to work more effectively.
In sum, people are prone to believe what they want to believe. Seeking to confirm our beliefs comes naturally, while it feels strong and counterintuitive to look for evidence that contradicts our beliefs. This explains why opinions survive and spread. Disconfirming instances are far more powerful in establishing the truth. Disconfirmation would require looking for evidence to disprove it.
It is important to set your hypothesis and look for instances to prove it incorrect. A true definition of self-confidence is the ability to look at the world without looking for instances that appeal to your ego.
Obtaining information from each member in an independent manner is crucial for group decision making. During a police investigation, witnesses are not allowed to discuss the crime prior to giving their testimony as part of a procedure to obtain the most reliable information. Keeping unbiased witnesses from influencing each other is the goal. It is well known that Abraham Lincoln purposely surrounded his cabinet with politicians with opposing ideologies. Lincoln always encouraged vigorous debate and discussion when making decisions.
Remember these 4 biases as you influence others.
- Anchoring effect: In a presentation or conversation, the anchoring effect occurs when information is gauged against the first information presented.
- Loss aversion: People who experience loss aversion are often more concerned about losing an asset or benefit than acquiring a new one.
- Curse of knowledge: This phenomenon occurs when someone with deep subject knowledge cannot understand how little another person understands.
- Confirmation bias: With confirmation bias, people are much more likely to agree with and believe something that matches their beliefs, even if there’s evidence or proof of the opposite.
*When you find yourself ready, I would love to connect about your sales processes, your sales team, and if we could possibly help you scale your business. Book a no-pitch chat at https://go.oncehub.com/30MinuteCoachingWayne and I look forward to connecting.