Negotiating and Culture

Firstly, my thanks to Million Dollar Journey and their entry Confessions of a Car Salesman which discusses negotiating techniques used by used car salesman. Reading that blog got me thinking on the topic of negotiation.

Through my travels, I have often been fascinated by cultural attitudes towards negotiation.

In a number of places in the world, prices are flexible. They can be negotiated, bartered or otherwise influenced. Some individuals are raised in a culture of negotiation. They always try to talk their way to a different price.

Many of us in North America have been raised in a culture of price tags. What we see is what it costs. We look for sales and can try to maximize our value through those, but ultimately, we pay the listed price. Now, is this bad? Not necessarily. It means that in day-to-day life, you don’t have to worry about negotiating. However, in a few remaining areas of North American life, negotiating is common and almost required. These areas include buying cars, arranging salaries and asking for raises, and buying houses. Also, in a not so coincidental way, areas such as these are ones in which many of us feel uncomfortable.

Why do we have issues with negotiating? There are a multitude of reasons. First and foremost, for many of us it comes down to issues of appearances. If we negotiate, we can feel poor or vulnerable. I have had the privilege of witnessing master negotiators at work, and they let no sense of shame interfere in their bargaining process. They will claim poverty, starvation, the need to support a family and many other items as they push the price in the direction they want. Frankly, a good negotiation between two skilled parties is a fascinating spectacle. Not all negotiations are showy and loud though, everyone has a different style of negotiating that can work for them.

We need to look past the “price tag culture” in which many of us have been raised in order to see the benefits that lie in negotiating. A fraction of a percentage point lower interest rates for a mortgage can lead to savings of thousands of dollars over time. A few well placed words can cut hundreds or even thousands of dollars off of a car. Price tags make simple things like shopping trips to the grocery store faster and more convenient. However, by accepting prices on the larger ticket items, we often might be throwing our hard-earned money away.

So, look past any insecurities you might have on the topic, and examine the benefits you might receive from negotiating. Rather than sacrificing any self-esteem, you might end up thousands of dollars ahead for putting in a little time. As a good starting point, take a look at the entry on Million Dollar Journey, it can help you see just how easily we get sold up on prices, and how we can turn those tricks to our own use. Remember, sometimes you CAN look beyond the price tag.

The Neurobiology of McMansions

How Our Brain Structures Led to the Housing Crisis

McMansions.

That is the derogatory term that arose the last few years for the large cookie-cutter suburban subdivisions that seem to have sprung up everywhere. You may have driven through these subdivisions and, much like me, wondered where so many people found so much money. I know what I make. I know I’m in the top 5% or so of income earners. So why don’t I have a top 5% McMansion?

In retrospect, it has become obvious that many of these people could not afford what they bought. This leads to the question of why they bought houses that pushed the limits of what they could pay. Blame it on their brains.

It is a sad but true statement about the human race that we don’t care about absolute wealth. We care about relative wealth - how much wealth we have compared to other people. We don’t want a higher standard of living if everyone else has it too. Some books would say it is all a result of an elaborate mating game. Women and men, in an ever more intense race to impress each other, attempt to make it look as though their income and success are much higher than they really are. But it goes deeper than that. The problem with the housing market can be blamed on the ventral striatum.

Last year, the neuroeconomics lab at Bonn released the results of a study or reward that involved scanning the brains of participants. What they found was not just that brains responded well to a reward. They found that brains responded even stronger to a reward that was better than the reward given to others. The experiment involved pairs of male volunteers competing for prizes on the same task. The BBC article about the research explains it well.

Both “players” were asked to estimate the number of dots appearing on a screen. Providing the right answer earned a real financial reward between 30 (£22) and 120 (£86) euros. Each of the participants was told how their partners had performed and how much they were paid. Using magnetic resonance tomographs, the researchers examined the volunteers’ blood circulation throughout the activities. High blood flow indicated that the nerve cells in the respective part of the brain were particularly active.

Neuroscientist Dr Bernd Weber explains: “One area in particular, the ventral striatum, is the region where part of what we call the ‘reward system’ is located. In this area, we observed an activation when the player completed his task correctly.”
A wrong answer, and no payment, resulted in a reduction in blood flow to the “reward region”. But the area “lit up” when volunteers earned money, and interestingly showed far more activity if a player received more than his partner.

This indicated that stimulation of the reward centre was not merely linked to individual success, but to the success of others.

You may have heard about “keeping up with the Joneses.” This research shows that it isn’t just something that affects a few of the more shallow among us. It is a real human need with a deeply rooted anatomical cause.

So back to the McMansions… what is a man to do… let all of his friends have the bigger, nicer, newer house? It seems that the drive of the ventral striatum outweighed the rational thought process for many people. All the while, lenders and investors, whose ventral striatums were firing like crazy as they tried to rack up larger earnings and returns, respectively, played along to satisfy that same deep seated need to be better than the next guy. The irony, or perhaps the karma, is that most of them ended up looking worse.

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