Adapted from “Picking the Right Frame: Make Your Best Offer Seem Better,” by Max H. Bazerman (professor, Harvard Business School), first published in the Negotiation newsletter.
Imagine that you bought a house in 2000 for $400,000. You have just put it on the market for $499,000, with a real target of $470,000—your estimation of the house’s true market value. An offer comes in for $460,000. Does this offer represent a $60,000 gain in comparison with the original purchase price or a $10,000 loss relative to your current target?
Obviously, both are true. Yet some people view the glass as half full (a $60,000 gain), while others see it as half empty (a $10,000 loss). Important individual differences arise in response to choices framed in terms of either gains or losses. These differences affect our decisions. In this case, ample research predicts that the seller will be more likely to accept the $460,000 offer if he frames it as a $60,000 gain rather than as a $10,000 loss.
We are easily swayed by the systematic way in which information is presented. Unfortunately, we also tend to be unaware of the impact of such frames on our decisions.
To avoid the adverse effects of framing in your negotiations, you must be aware of the presence of frames and consider the possibility of adopting alternatives.
Consider the following two possible questions that an acquirer might ask the target of a hostile takeover:
Option 1: What’s the lowest price you’ll take for your lousy firm?
Option 2: I want to do everything possible to make you a more attractive offer, so, if you don’t mind my asking, what will you do if you don’t sell your firm to us?
We can all intuit that the second option is more likely to be effective. It is certainly more pleasant. But notice that the content of the two options is fairly similar—it’s the frame that’s dramatically different.
Sometimes there is no ideal outcome available for one or more sides in a negotiation. Plants close, people are laid off, and almost everyone is worse off than they were before. When you and your negotiating partner are deciding among two or more unappealing options, a negative frame can make matters worse, inducing you or the other side (or both sides) to make an overly risky decision.
On the other hand, by introducing a positive frame, you can make the best of a bad situation, specifically by drawing attention to the risk reduction that your counterpart can obtain through agreement.