Quick. A bat and a ball cost $1.10together. The bat costs $1.00 more than the ball. How much does the ball cost?
Come on, come on.
Hurry up, answer.
Was your answer that the ball costs $0.10?That answer is wrong. If the ballcost $0.10 and the bat cost $1.00 more (i.e. $1.10), then together they wouldcost $1.20. For the bat and the ball to cost $1.10 together, the ball has tocost $0.05. (Did that just blow your mind?)
Don’t worry, I didn’t get it right either.Even years after I first heard this test, every time I hear it I still have tostop and work out mentally why this is. Getting it wrong doesn’t reflect badlyon your intelligence, just on your condition as a hairless ape. Faced with asimilar problem, Stephen Jay Gould wrote that even after knowing the correctanswer, “a little homunculus in my headcontinues to jump up and down, shouting at me” the wrong answer. It is justthat deceptively simple arithmetical exercises like this are done by theintuitive, quick-thinking part of your brain. If the problem used less round orlarger numbers, you would be less likely to go wrong. Because then you wouldmobilize the more sophisticated—but lazier—part of your brain that makes morecomplex mathematical calculations.
The preceding brain teaser is an ingeniousdemonstration of cognitive biases (or malfunctions) that are built into ourbrains. The slower, lazier System 2 that lumbers along slowly to makecalculations is a very recent product of evolution. Most of the time, ourSystem 1 is in charge, which we share with other animals. It is quick,unreflective and superficial, because its main job is to flee predators andfind food.
I’m reading Daniel Kahneman’s Thinking, Fastand Slow, an introduction by the Nobel-winning psychologist intothe study of the systematic mental biases that dominate a significant part ofour interaction with the world. Together with fellow Israeli psychologist AmosTversky, Kahneman revolutionized the field of economics five decades ago byturning the idea of rational choice on its head.
One of the main quirks of the brain thatthese academics discovered is the phenomenon of anchoring. In experiments, ithas been demonstrated that people who have been shown arbitrary numbers areinfluenced to use these numbers in making subsequent calculations that haveabsolutely nothing to do with the original number.
One example: a group of people see a wheelof fortune with numbers being spun. It always lands on 65. Then they are askedwhat percentage of the countries in the UN is African. On average, they respond45%. A different group that is shown a wheel that always lands on 15 respond onaverage 25% to the same question. This means that even numbers which peopleknow are random have an impact on their subsequent mental calculations. Thisanchoring effect has been demonstrated over and over in many differentcontexts. Some are funny: MBA students are told to recite their college IDnumber and it has an effect on different estimates they are asked to make.Others are more chilling: Judges are told to roll two dice and then sentencepeople for a misdemeanor. Systematically, the judges who rolled low numberssentenced people to a couple of months, while higher rolls corresponded to sentencesof seven months or more.
Leaving aside the disturbing aspects of ourirrationality, it makes sense to exploit the phenomenon of anchoring whennegotiating rates. Regardless of whether your initial rate is accepted or not,your opening proposal will act as an anchor on a negotiation. Moreover,regardless of where you start the negotiation, your counterpart will be keen onachieving a reduction. Conclusion: never start with the minimum at which youwould do the project. Start at a high rate, because the client may ask for areduction (and perhaps even need it psychologically). Give yourself leeway toreduce the rate a little in case you have to drop it a little to give the otherperson the illusion that he or she is a savvy negotiator. The use of anchoringis win-win. If you have to lower your original high bid, you still get to workat a rate that is acceptable to you, and the other party feels satisfied afterhaving obtained a “discount.” If your original high offer is accepted, you getto work at a rate that is more than satisfactory for you.
Miguel Llorens is a freelance financial translator based in Madrid who works from Spanish into English. He is specialized in equity research, economics, accounting, and investment strategy. He has worked as a translator for Goldman Sachs, the US Government's Open Source Center, and H.B.O. International, as well as many small-and-medium-sized brokerages and asset management companies operating in Spain. To contact him, visit his website and write to the address listed there. Feel free to join his LinkedIn network or to follow him on Twitter.
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