Is it possible to persuade someone to pay $100 for a $20 banknote? Professor Max Bazerman from Harvard Business School thinks so.
On the first day of his negotiating class he takes a $20 banknote from his wallet and offers it up for auction. Anyone is welcome to take part in the auction provided that they abide by two rules. The first is that bids must be made silently in $1 increments. The second is that the runner-up in the auction must, as a penalty, pay an amount equivalent to their last bid while receiving nothing in return.
As the auction begins, hands quickly go up as the audience sense an opportunity to acquire cash on the cheap. “The pattern is always the same,” Bazerman says. “The bidding starts out fast and furious.” But then something interesting happens.
When bids reach the $14-$16 range it suddenly becomes clear to everyone that they aren’t the only ones hoping to pay less than face value for the $20. Very quickly all but the two highest bidders drop out. At that point something really interesting happens.
Without realising it, the two remaining bidders become locked in a new game and, instead of playing to win, they are now playing not to lose.
The bids continue to rise. $18...$19...and then, to much laughter (and relief) from those who have dropped out, the bid reaches $20. It is clear that the bidders should accept their losses before the auction spins even further out of control. But they rarely do. The experiment has been repeated on over 200 separate occasions and only once did the auction end before the bid reached $20. Many times the $20 sold for more than $100, the record being $204!
During the auction, two persuasive forces appear to influence the bidders. The first is commitment. Although small, each incremental bid that is made commits the bidder further and once they get so far down the line it becomes difficult to let go. At that point a second persuasive force comes into play – the desire to avoid losing.
Rather than providing a lesson in how to persuade others, perhaps this experiment is a better demonstration of how easily we can be persuaded into actions – sometimes against our better judgement.
In our desire to land that new client or win the bid for that lucrative new contract, we might become so committed to winning and so keen to avoid losing that we invest more time, resources and money than is prudent. Given the powerful and often under-recognised forces of persuasion, having a way of checking that we are not becoming committed too early on may be wise.
Steve Martin is co-author of Yes! 50 Secrets from the Science of Persuasion. Visit scienceofyes.com.
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