Framing Principles,Persuasion Techniques,and Influential Strategies

More about Framing
“No” often means “no,” but it doesn’t have to! Allow me to keep you in
suspense for just a few moments and let you indulge yourself with an-
other game you can play and compare your results to the majority of
the population:
Situation A: In a game you receive $1,000. In addition, you have a
choice between a certain gain of $500 or a 50 percent chance of
winning an additional $1,000 and a 50 percent chance of winning
nothing.Which do you choose?
Situation B: In a game you receive $2,000. In addition, you have a
choice between a certain loss of $500 or a 50 percent risk of los-
ing $1,000 and a 50 percent chance of losing nothing.Which do
you choose?
Before you read on, please do make your choice.
These are the situations that Kahneman,Slovic,and Tversky (1982) pre-
sented to hundreds of subjects. Situations A and B are 100 percent identical,
but most people choose differently in each situation because of the framing.
In both situations you are deciding whether you want $1,500 guaranteed or
have a 50–50 chance of ending up with either $1,000 or $2,000.
How do most people respond?
In situation A, 84 percent of people choose the certain $1,500 (the
first option). Only 16 percent gamble on the 50–50 chance of ending up
with either $1,000 or $2,000.
In Situation B, 31 percent of people choose the certain $1,500 (the
first option).A full 69 percent are willing to gamble on the 50–50 chance
of ending up with either $1,000 or $2,000.
The situations are 100 percent identical yet the frame makes all the
difference in the world as to how people decide.
Question: Examine the two frames (situations) carefully.What is the differ-
ence between the frames and why do you think people choose the way
they do? How might you utilize your hypotheses in your own interactions?
Here are a few lessons we learn from research that examines frames
and choices:
Lesson A: People do not necessarily decide what is best for them; they
decide what presentation of facts is more attractive.
Lesson B: Because we all succumb to the presentation of facts (and
fallacies) and not to reality itself, we all need to look at any important
decisions from all points of view.
Lesson C: People will lock in a sure gain in favor of any risk in the future,
but they will let their losses run.(Example:People hold a stock to-
day at 10 that they bought at 70 because they have so much in the
stock.This is one of the stupidest things people do.They should
take the money and invest in the instrument that holds the highest
probability of appreciation.)
Let’s move this to a more real-world scenario and see how the way
people think causes them to make bad decisions, and how you can influ-
ence them to do what is in their best interest once they blow it.
Scenario 1
You see a brand-new car that you have been drooling over for months.It’s
priced $500 below invoice an offers a $2,000 rebate! But because money
has been tight,you decide against buying the car.Three months later,your
financial situation has improved and you see the same car still priced at
$500 below invoice but the rebate program ended last month. Do you
buy the car?
If you are like most people the answer is “no.”Why would that be? You
can get a car at below invoice (That’s supposedly what the dealer pays for
the car, not the retail price on the car!) The reason is that most individuals
experience what is called “avoidance of anticipated counterfactual regret.”
In simple English,that means that if we bought the car now,we would feel
as if we had missed out on last month’s bargain and don’t want to regret it.
To avoid that pain, people will continue to pass up great opportunities,
even though they aren’t quite as great as “the one that got away.”
However,if you drive past the dealership every day on your way to the
office, the repeated exposure to the car is often enough to overcome the
inertia of inaction and allow you to change your mind and buy the car.
You’re going to be seeing what you could have had every single day, and
therefore you are experiencing regrets of another kind anyway, so you be-
come more likely to stop back and buy the car.
Now, if you can understand this you can influence others to your way
of thinking in ways you have never dreamed of.
I
You’ve met with a client or customer and given them a grand op-
portunity, which they declined. How can you stay in front of that
customer over the weeks and months so they ultimately will do
business with you? (Out of sight = out of mind.)

How can you change an offer or restructure an offer so that the
client/customer feels as if they are getting the same original price
on something and therefore does not need to psychologically avoid
buying from/saying “yes” to you?
Scenario 2
Another example might be a TV that you know retails for more than
$600. In the Sunday paper you see it on sale for $397 but it’s for one day
only. It’s a super bargain if you ever saw one, but you decide against it for
some reason.The following Sunday the set is still on sale but this time for
$497.You missed the first opportunity for some reason or other and now
you have an opportunity to still get the TV at a big discount . . . and of
course you don’t buy it because you will feel the loss of the $100 that you
would have saved had you purchased it last week!
The research of this phenomenon shows that inaction inertia occurs
when the second action opportunity is in some sense worth substantially
less than the initial opportunity, even though the current action opportu-
nity has positive value in an absolute sense. (Tykocinski 1998)
Therefore, once a customer or potential customer/client says “no” to you, you
must develop a strategy to overcome inaction inertia or you will lose this client forever.
How can you structure your initial offer so that it is a tremendous
value while allowing the customer to feel the perception of a similar
tremendous value later . . . if they say “no” to you now?
In the case of the TV, perhaps you might include a service contract at
no cost.This costs the company next to nothing and is quoted at $80 to
the customer.
In the case of the automobile, you could offer to do 18 months of free
oil changes and tune-ups.Total value could be as much as $500 and the
real cost is next to nothing because a tune-up might not be needed, espe-
cially in the first year and a half, and the cost of oil and a filter is negligible
compared to the profits on the automobile sale.
A person of influence must preclude the “no” reaction in the first
place.The best way to do this is by utilizing tools of anticipated regret that
overcome resistance.
Publishers Clearing House has done this for years. (Many would say
unethically and I might not argue about that.) Here’s how it has used an-
ticipated regret in its mailings in the past:
Suppose we told you . . . you were recently assigned the winning su-
per prize number, but you didn’t enter so we gave the $10,000,000
to somebody else! Deciding not to enter our sweepstakes is serious
business.
That’s pretty powerful stuff, isn’t it?
Asking a person to engage in counterfactual thinking means you are
having someone consider alternate realities that could be true had some-
one done some other set of actions. Counterfactual thinking generally is
related to regret, and Publishers Clearing House has mastered the concept
of regret in marketing, as you can see!
Here is your homework assignment that will help you build your
powers of influence.
1. List four specific ways that you can utilize anticipated regret with
your products and services.
2. List four specific ways you can keep your product/service/ideas in
front of your prospects who have temporarily said “no” to you.
3. Write down how you normally frame your offers and see if there
are other ways that you can frame your offers to make them more
appealing.
Foot in the Door:A Proven Persuasion Strategy
That Leads to “Yes!”
(Bonus:This is a free $10,000 Key that I have shared with numerous com-
panies. It’s now yours free for reading. Use it wisely.)
You can’t persuade someone if you can’t get in front of them to com-
municate your message. For hundreds and thousands of years businesses,
merchants, therapists, and salespeople have used the foot in the door
(FITD) technique to gain access to the person who can say “yes.” Does it
really work as well as salespeople think?
You already know that every persuasion and influence strategy that
works in selling works in therapy, works in marketing—well, you get the
idea.We tend to say “yes” or “no” based on the interaction of certain mea-
surable variables.
I favor any strategy in the field of influence that is tested and proven to
be effective. I want to share two powerful techniques that increase your
chances of getting the result you want: the foot in the door (FITD) tech-
nique and the amendment technique.
FITD Technique
The foot in the door technique is a simple concept.The idea is to get your
client/customer to say “yes” to a simple and small request immediately be-
fore you ask for a big “yes.”
Remember the old days when an encyclopedia salesman would come
to the door offering a free three-book set of a thesaurus, dictionary, and
grammar book if you simply listened to his presentation about his ency-
clopedias? I do. I still have the Britannica in the office.This is the perfect
example of the foot in the door technique.You ask your client/customer
to say “yes” to a small request so that you can have an opportunity to ask
your customer to say “yes” to a large request.
Effective?
More than you know!
Foot in the door strategies are the strategies that have sold billions of
dollars of time-sharing (one of the worst investments you can make—
though it can be fun!). How? Most resorts will ask you to give them 90
minutes of your time in exchange for a free television, tickets to Disney
World or a free weekend at the resort.The 90 minutes they want is a struc-
tured high-pressure presentation designed for the person who has prede-
termined that “There is no way that we will buy.”The strategy has been
effective for decades.
Pharmaceuticals are getting their foot in the door in a positively bril-
liant fashion now. Instead of having doctors give away free samples, many
pharmaceutical companies are having the doctor give the patient a free
prescription coupon redeemable at the pharmacy and all the doctor has to
do is write the prescription.The pharmaceutical wins big because not only
is the prescription written but it is at the pharmacy where all that needs to
be done is call in for a refill when the prescription is used up. Absolute
brilliance that didn’t always work when the M.D. was giving free samples
to the patient.
All of this sounds good, but what does the research reveal?
Research shows that using FITD can increase compliance in many situations
by as much as 200 percent! Here are a few facts that have been discovered:
1. The larger the first request that is agreed to, the more likely the
person/company is to say “yes” to the second and more important request.
$10,000 Gift for You. (I’ve gotten paid $5,000 for this on more than
one occasion.)
This was borne out with one company I consulted with that used
coupons to discover which coupons would draw more people and what
the retention rate of each coupon was.The discovery was that the higher
the price paid on the first coupon, the larger the retention rate.The lower
price/greater discount on the coupon had a much higher usage rate but a
much lower retention rate. Read this 10 times and calculate the implica-
tions for your situation!
2. Do not use money to induce compliance to the first request.When this is
done, the foot in the door technique does not work.
In other words, don’t offer someone money as an inducement to do
business with you or to buy your product/service.
3. The receiver of the foot in the door must actually do something, not say
they will do something, for FITD to be effective. (Burger 1999)
Always remember:What people say and think they will do bears little
relationship to their actual actions.It’s not that people are ill willed or have
bad intentions;people simply are lousy predictors of their future actions.In
fact, simply go with this:What people say they are going to do is relatively
meaningless. Observe what people have done in the past and you can pre-
dict what they will do in the future with greater accuracy than by asking
what they intend to do in the future.
4. If the request has some prosocial aspects (Dillard, Hunter, and Burgoon
1984) people are sometimes significantly more likely to comply than in situations
that are clearly for profit only.
The foot in the door technique is one of the most powerful persua-
sion techniques, and there are reams of research studies in the literature
that prove this beyond a shadow of a doubt. It’s time to start putting to-
gether a plan on some level as to how you and your business/company can
utilize the FITD technique!
Exercise: How can you apply the foot in the door technique to your spe-
cific persuasion scenarios?
Four Tested Ways to Be More Persuasive with Framing
1. Get something of yours (your product, your idea, your service) that has
value into your customers’ hands/minds as soon as possible! As soon as someone
possesses something, they perceive it to be more valuable than they did
immediately prior to owning it.
Research by Kahneman and Tversky (1984) brings these examples to
our attention:
I
Individuals who ultimately bet on team A in a football game are of-
ten ambivalent as to which team to select until they actually place
their bets on team A.Once they have placed their bets,they tend to
dramatically favor team A and show little hesitation in sharing their
certainty that team A will win.
I
Students receive mugs in a research setting and are given the oppor-
tunity to sell the mugs. Other students are given the opportunity to
buy the mugs. Students will not take less than $7.12 on average for
the mugs they have taken possession of.The other students will not
pay more than $3.12 on average for the same mugs. Lesson: Once
you own something you value it more highly than those who do
not own it—even if it has been owned for only 10 minutes!
2. Create a frame (a word picture in your customer’s mind) that your product/
service/idea is something that they already possess . . . so that it becomes the
status quo in their thinking:“Once our lawn service is yours we help you
eliminate all that crabgrass that the old services you used to use never were
able to control.”
I
Students in one class were given a decorated mug as compensation
for filling out a questionnaire. In another class, students received a
large bar of Swiss chocolate.When given the opportunity to trade
with members of the other class, only 10 percent of students traded
their item while 90 percent stayed with what they had.
I
More impressive: 45 students received a gift package of a Stanford
calendar and a free dinner at MacArthur Park Restaurant. In an-
other group of 45, the students received a Stanford calendar and a
certificate for an 8 × 10 professional portrait. Later that day all the
subjects were told they could trade their current package for either
two free dinners at MacArthur Park Restaurant or a professional
portrait sitting including an 8 × 10, two 5 × 7’s, and a wallet photo.
The results were that 81 percent of the dinner/calendar group
swapped their package for the two dinners.
Lesson: People want what they have and more of it!
3. Create a word picture that creates a moderate amount of tension if the client
doesn’t do business with your company. In other words, what will the clients
lose if they do not do business with you?
I
Research:In one experiment with gambling,individuals were given
the opportunity to flip a coin and bet $10. Only with a payoff of
$25 and a possible loss on the individual’s part of $10 were most
willing to gamble! That’s a 2.5:1 ratio for a 1:1 bet!
I
Research on real-life applications: Loss aversion is more pro-
nounced for personal safety than for money. (People will do more
to protect themselves than their money.) Loss aversion is more pro-
nounced for income than leisure. (Losing a chance to travel isn’t as
powerful as losing income.)
Lesson: People move away from loss. Determine what people lose if
they don’t do business with you and artfully develop word pictures that
clarify the hurt they might experience. For example,“You are seven times
more likely to become disabled than die in any given year, and if you be-
come permanently disabled your family will lose everything because you
will be unable to work and they will have the added expense of taking care
of you. If you carry insurance against this enormous risk, you avoid losing
everything and have the ability to maintain a high standard of living no
matter what happens to you.”
4. Don’t confuse opportunity costs with out-of-pocket expenses.Your cus-
tomer doesn’t and is watching you to see how you promote your
business. The following research was conducted in two cities by tele-
phone sampling:
Scenario 1. A shortage has developed for a certain popular make of au-
tomobile, and customers must now wait two months for delivery.
The dealer has been selling the cars at list price. Now the dealer
prices the cars at $200 over list. Is this acceptable or unfair?
Acceptable 29%.
Unfair 71%.
Scenario 2: A shortage has developed for a certain popular make of au-
tomobile, and customers must now wait two months for delivery.
The dealer has been selling the cars at $200 below list price. Now
the dealer sells this model at list price. Is this acceptable or unfair?
Acceptable 58%.
Unfair 42%.
Scenario 3: A company is making a small profit. It is located in a city
experiencing a recession with substantial unemployment but no
inflation.The company decides to decrease wages and salaries this
year by 7 percent.Acceptable or unfair?
Acceptable 37%.
Unfair 63%.
Scenario 4: A company is making a small profit. It is located in a city
experiencing a recession with substantial unemployment and in-
flation of 12 percent.The company decides to increase salaries by
only 5 percent this year.Acceptable or unfair?
Acceptable 78%.
Unfair 22%.
Each pair of scenarios presents two is identical situations. (Scenarios 1
and 2 both involve a price rise of $200; scenarios 3 and 4 both involve
wages 7 percent below the inflation rate.) However, the consumer reacts
very differently to each option. Consumers do not want to perceive
money coming out of their pockets. Be certain to frame every promotion
in such a way that the consumer is clearly saving (and assume no mathe-
matical ability on the part of the consumer).
Mastering the Science of Influence: Priming the Pump
Do these four thought exercises with friends,groups (best!),or on your own.
1. Read this scenario:
John is intelligent,industrious,impulsive,critical,stubborn,and jealous.
Mark is jealous,stubborn,critical,impulsive,industrious,and intelligent.
Quickly, which person do you think you would like more, John
or Mark?
You have a lot of company if you said John. Most people do, and the
reason is simple.Although the same traits were used to describe John and
Mark, the principle of primacy primes the mind to filter everything else
you learn about someone through the first characteristic, that of being in-
telligent in John’s case and jealous in Mark’s case As each characteristic is
mentioned in order, it becomes less and less important.
2. Guesstimate the total of each of these multiplication problems. Show the
first equation to one person and the second equation to another.Each per-
son gets only five seconds.
1 × 2 × 3 × 4 × 5 × 6 × 7 × 8 = ?
8 × 7 × 6 × 5 × 4 × 3 × 2 × 1 = ?
The average guess for the first problem is 512. For the second? 2,250.
The correct answer is 40,320!
Why the big difference in guessing and the huge distance in both cases
from the right answer? People group the first few numbers together in
each set and then guessed based on this information.
3. Group 1 (or person 1 if you are doing this with only two friends) is shown
these words and asked to remember them:“adventurous,”“self assured,”“indepen-
dent,” and “persistent.”
Group 2 is shown this set of words and asked to remember them:
“careless,”“conceited,”“solitary,” and “stubborn.”
Now, each has 15 seconds to describe and evaluate the following per-
son: Donald is a parachutist.
The descriptions given by the individuals or groups will be heavily
slanted toward the words they had to remember. Group 1 typically finds
Donald a free spirit.Group 2 typically finds Donald careless and a daredevil.
$10,000 Key to Influence: Whether you realize it or not, everything you
watch,listen to,read,and think about influences the next thing you consider.
4. Say the following word five times, then continue reading.
“Blood.”
What color does a traffic light have to be to proceed?
Did you say “red?”
Go back and look at the question. Interesting, eh?
These four scenarios all take advantage of our brain’s programming for
primacy.We tend to lose the ability to consider much information after the
first important piece, and in fact we tend to filter or disregard information
that doesn’t match our current information, whether or not the new in-
formation is valuable.
Key to Influence: There is an enormous amount of research, old and
new, that confirms that what happens first in some experience, event, or
situation alters our perceptions of everything that follows.There is also an
equally large amount of research that shows that what happens last in some
experience, event, or situation is extremely important in our perceptions
and beliefs.
Are the two findings in contradiction? No.The brain tends to remember
that which happens first and last in sequences,events,and life in general.The
balance between the two (primacy and recency) is very interesting.One ex-
periment shows that when two speakers are giving speeches one right after
the other with no break,the first speaker tends to be received better and ap-
preciated more. However, when speakers (say candidates for office) can
choose between speaking before a group this week or next week, they
should choose the later event as people (when they go to the polls, say) will
forget what happened last week,and the freshness of this week’s speaker and
her message will ultimately be seen in a much better light.When consider-
ing going first or last, the key determining factor for positioning is the
elapsed time between the events.The shorter the elapsed time,the better it is
to go first.The longer the elapsed time,the better it is to go last.
Let me ask you a few questions, may I?
What was the first school you attended?
What was the second?
Who was the first person you kissed?
Who was the second?
What was the first apartment you rented?
What was the second?
What was the first car you actually owned?
What was the second?
What was your first job?
What was your second?
I think you get the idea!
So, we know we have a hard time remembering things in the middle!
We are good at beginnings and endings. How do we use this enlightening
information?
Priming people to accept a message is all about starting out with a
great impression—something big, a promise, a big smile, something that
sets the stage for everything that can happen later. Remember that what
happens first will be remembered and will serve as a filter for everything
that comes after.
Quick! Get a pen and paper.
Choose which you prefer (you’re making monetary bets). Circle or
write down your choice.
Alternative A:A sure gain of $240.
Alternative B: A 25 percent chance to gain $1,000, and a 75 percent
chance to gain nothing.
Choose which you prefer:
Alternative C:A sure loss of $750.
Alternative D: A 75 percent chance to lose $1,000, and a 25 percent
chance to lose nothing.
Kahneman and Tversky (1984) found that 84 percent of people
choose alternative A over B.
First Key:When people have a sure thing in hand,they tend not to go for
the potential bigger gain and lose what they have.People hate to lose what
they have.
Second Key: Instead of the sure loss, people will gamble at an even
greater loss for the chance to break even. (This is why casinos have big
chandeliers, big-name acts, and the best hotel rooms on the planet.)
When people feel pain or have experienced loss,they will spend more to get out
of the loss or come out of the pain, even if the odds are against success.
In fact, 73 percent of all people choose the AD combination even
though BC is a better choice (only 3 in 100 will choose that combination)
and the one that is the logical choice.And so it is with our species.We are
a rationalizing people. We make emotional choices and then rationalize
(make them seem logical, whether correct or incorrect).
Third Key: How a question, proposal, idea, product, or statement is
framed can largely determine what the majority of people will decide and
actually do.
Most people respond or react to the fear of loss and the threat of pain
in a much more profound way than they do to the potential for gain.This
does not mean, however, that all of your influential messages should be
couched in the language of fear and threats. Far from it. In fact, in some
situations fear and pain will turn someone away from your attempted per-
suasive communication.
Once you begin to understand when it is appropriate to use prohibi-
tions, losses, and fear in your message and when it is appropriate to use al-
lowances, gains, and positive messages, you will find yourself influentially
succeeding in ways you didn’t think were possible.
We pride ourselves on being in charge, in control, intelligent, great-
decision making beings . . . until we are exposed to the truth. Sigh. . . .We
often respond to others in ways that make absolutely no rational sense
whatsoever. Becoming aware of most of these mechanisms of stimulus/re-
sponse, environment/response, frame/response, perception/response will
help you become a superb decision maker and open the door for you to
become a remarkably influential person.
What about educated people? Medical doctors? How do they decide
what to do, and how will they influence your decision?
A 1987 study in the New England Journal of Medicine involving 1,193
participants revealed this:
Which of two treatments would specialists prefer—surgery or radia-
tion therapy for cancer? It depended on how the question was asked!
If the medical specialists were asked the question in terms of “surgery
will yield a 68 percent chance of surviving after one year,”then three-quar-
ters of the time surgery was chosen.If the question was asked in the mortal-
ity (death) frame (32 percent will be dead by the end of one year), then
only 58 percent of the time did the specialists choose the surgery option.
Fourth Key: The frame of a proposal can alter life-and-death decisions
even though the identical data is used to make the decisions!
Hypnotic Confusion
Milton Erickson, M.D., was one of the twentieth century’s best-known
hypnotherapists.
Erickson utilized the tactic of confusing his patients so they would go
into a trance and be distracted from resistant thoughts they would have to-
ward Erickson or hypnosis in general. Erickson believed that whatever
suggestion followed the confusing tactic he would use would be more
likely to take hold and succeed.
Some hypnotic confusion techniques have proven to be counterpro-
ductive and actually increase resistance, but simple disruptions followed
by an elegantly simple reframe actually have been proven to be successful
in influence.
Example 1:The Cupcake Study
People coming to the Psychology Club table on campus used the follow-
ing answers in response to the question “How much are they?”
Control:“These cupcakes are 50 cents; they’re really delicious.”
Mild disruption:“These half cakes are 50 cents;they’re really delicious.”
Severe disruption:“These petits gâteaux are 50 cents;they’re really delicious.”
What worked for making sales?
Mild disruption: 74 percent.
Severe disruption: 67 percent.
Control: 46 percent.
Does this work with anything other than students selling cupcakes?
Example 2:The Donation Study
Students asking for donations to their Richardson Center asked people to
donate “some money” in the control and “money some” (just those two
words in their door-to-door presentation) in the disruption condition.
A third condition was tested using “money some”and the name of the
organization incorrectly stated as “Center Richardson.”This was a severe
disruption.
Results:
Disruption: 65 percent of houses donated.
Control: 30 percent of houses donated.
Severe disruption: 25 percent of houses donated.
Exercise: How can you use the technique of hypnotic confusion in selling
your idea or product (or yourself). List three ways.
The Amendment Technique
There are different ways we can present our price to our client. Look at
the following two ways.
1. “These cupcakes are 50 cents.”
2. “These cupcakes used to be a dollar, but now they’re 50 cents.”
What difference can that little bit of wording make? A big difference.The
sentence you want to use,of course,is the second one.We are telling our cus-
tomer that we have amended the price.The power is in its startling the client
with the original price,and then revealing the new reasonable price.
How can we use this data to our advantage? You tell your customer
that your bicycles were $129.95 each, but now they’re $ 99.95! People ap-
preciate knowing how much something did cost, and what is a reasonable
amount for that product today.
Bonus: Price Points
In the United States,we think of money in terms of our standard currency.
We have $1, $5, $10, $20, $50, and $100 bills.These are all what we call
“price points.”A price point is a point at which going over that price will
make our customer hesitate, or even refuse to buy.
The most common ones are $.99, $9.95, $19.95, and $99.95.
What about $20,000? A car for $19,995 is much cheaper than one for
$20,195, right?
Exercise: How can you use the amendment technique in your business
today? List three ways. How can you take advantage of price points in
your industry?
How Most People Make Bad Decisions . . .
How You Can Help Them Make Good Ones!
Our life experience is largely a combination of our state of mind, com-
munication, relationships, actions, and decisions. If someone is to achieve
success in some area of life, certainly making well-considered decisions is
critical. Learning how you make decisions and how others make their de-
cisions will not only allow you to become a more influential person, it
will help you grow yourself—with fewer regrets and more wins!
Is it time for a career change?
Which job should you take?
Should you marry this one?
Should you divorce this one?
Should you buy this car?
Should you buy that home?
Before you make that big decision you may want to read this set of ar-
ticles, which will shed light on not only our decision-making blind spots
and errors, but also how to actually make great decisions.
Reams of research show that in general:
I
People assume when they decide on something and it turns out
well that they made a good decision—when it easily could have
been attributed to chance (luck).
I
People tend to overemphasize the importance of pain by about
2.5:1 in decision making. (People may not need to feel great but
they don’t want to hurt at all.)
I
People rationalize their emotional decisions instead of making ra-
tional decisions.
I
People make their decisions emotionally when the answer to a
question or proposition isn’t obvious.
I
People make their decisions impulsively,then stand by their impulse
as if the decision was made rationally.
I
People make their decisions based on their experience and not the
experience of the masses.
I
People make decisions based on the socioenvironmental frames
they put the decisions into. (A woman going to Planned Parent-
hood for counseling will get different advice than the woman going
to her conservative pastor.)
I
People tend to make decisions on their own instead of seeking the
counsel of numerous others who can give additional perspectives.
I
People are unaware of the enormous power of the actual words that
are used to ask the question, and how the phrasing can make an
enormous difference in the actual decision that is made.
I
People are unaware as to how the influence of specific questions
changes their minds unconsciously. (“Are you sick of driving that
old junker?” versus “Are you thinking of buying a new car?”)
I
People tend to avoid what they perceive as risky.
I
People tend to lack the skills to calculate the chances that events
will or won’t happen.
I
People tend to decide on the sure thing even when it doesn’t make
real sense to do so.They will take a sure $100 instead of a 50–50
chance at $250, for example.)
I
People tend to make decisions without a solid understanding of
“the real-life likelihood of events.” (Read that as mathematics, sta-
tistics, and probability.)
Not only do most of us make lots of bad decisions, we also tend to
dramatically overrate our decision-making skills! We tend to remember
our good decisions and think we’re actually good at decision making.
But wait! It gets worse! We tend to overestimate everything about our-
selves from the income we earned last year to the grades we got in ele-
mentary school. Here are just a couple of examples of how people
perceive their judgment in the real world to be in contrast to how it
really is.
Ninety-six percent of all men rate their physical appearance as average
or better!
Ninety-four percent of all women rate their physical appearance as av-
erage or better!
What’s wrong with this picture? (Obviously only 51 percent are aver-
age or better.The other 49 percent are below average.)
Ninety-one percent of all business leaders believe they are good or
very good decision makers.
Eighty percent of businesses fail in the first four years.
Ninety percent of new products fail to make a profit.
What is wrong with this picture?!
Now, with these amazing facts behind us, it would seem that seeking
expert advice from your broker, your agent, your attorney, your therapist,
or your mom would be helpful (maybe), but don’t get too excited until
you look at this:
Here’s an example of how we tend to overrate expert advice:
About 20 percent of all stock mutual fund managers select stocks that
ultimately do better than the S&P 500 index, often called “the market.” In
other words, only 20 percent of experts—people paid millions of dollars
per year to beat the market—succeed at doing so.Think about that. Given
reams of computer analysis, data, and information, a full 80 percent of the
world’s smartest professional investors cannot do better than the person
who claims to know nothing about the market and simply invests in the
500 companies in the S&P 500!
Why are these experts so poor at deciding what stocks to buy?
I
Past performance is not always an indicator of future results . . . but
most experts still make investment decisions as though it is.
I
Most experts don’t consider the factors that really will influence the
future.
I
They believe their own publicity clips.
Almost every decision we make in business, relationships, or life is a
function of probability.That means that you don’t actually know the out-
come of the decision in advance.When you get in your car and drive to
work you are deciding that people will drive carefully on their side of the
road while you speed along at 55 mph on your side of the road with two
painted yellow lines dividing you.And indeed that is a decision that when
you look at it this way is fairly risky but in reality the probability of disas-
ter striking (someone running head-on into you and killing you) is very
slim. In this case, our day-to-day experience and our illusion of control
(we’re driving so everything will be okay) confirm for us that while we see
a lot of accidents, we know that almost everyone is safe driving to and fro.
So we drive.
But the same set of factors can work the opposite way in making
decisions.
Millions of people buy lottery tickets every day. The lottery (like
Powerball) is one of the worst bets on the planet.The odds are 55,000,000
to 1 that you will lose—and, yes, eventually someone has to win, but let’s
put those chances into perspective:If you have been struck by lightning 40
times or have died in 20 plane crashes then you might just be the person
to win the lottery—those are the same odds as winning the jackpot in the
Powerball game! The fact is that you aren’t going to win the lottery and
neither am I. It is a terrible decision to buy a ticket. Just take your dollar
bill or $10 bill and burn it. Feel better? Ouch!
What about the “easier” lotto games? What about games where you
only have to match three numbers to win $500 for your measly $1 invest-
ment? From 000 to 999 there are 1,000 total numbers that can be drawn.
Your odds of winning therefore are 1 in 1,000.That means that on aver-
age for every $1,000 you spend on the lotto you will get returned $500.
You should get $1,000 for a winner but the government/lottery sponsor
is giving you $500. I don’t know how much you earn, but a lot of people
make only $500 per week and it’s worth considering that the govern-
ment, which regulates the lottery, is really extracting a “stupid tax” from
those foolish enough to decide to play. Now, could you pick the winner
tonight in a 1 in 1,000 event and win the $500? Sure you could. Lots of
people will. But it’s still a foolish decision to buy the ticket just because it
could happen.
So how do you make a good decision?
There are lots of factors involved. Dozens actually. Let’s look at one
simple factor and key to making good decisions.
Key to Influence:What is the chance of something happening versus the
payoff? If the payoff is worth more than the risk, then the decision is a
good decision even if you are wrong. If the payoff is worth less than the
risk, the decision is a bad decision, even if you are right.
Example: Last year I won a nice sum of money on the Super Bowl. I
have a modeling tool for picking football games. Some years the model
does better than others. My model said that New England would beat St.
Louis about one-third of the time in this specific game.The casino was of-
fering about $450 for each $100 bet if New England did indeed win. It
was very difficult to put money on New England (because they should
lose two-thirds of the time in this game), but clearly because they should
win one-third of the time (assuming the model is right) and the casino was
willing to pay off more than double those odds, I had no choice but to bet
it all on New England. In other words, according to my model, the casino
should pay off only $200 in addition to getting my $100 back, but it was
offering $450! I had to make the wager. I did.They won. It was good.
Now, New England could have lost and it still would have been a
good bet because the casino was going to pay me more than twice as
much on a win as they should have. It’s no fun when your decision turns
out wrong,but you can learn to make the best decisions possible.We’ll talk
much more about just that in later chapters.
It’s sometimes difficult to calculate the probability of life events.
“If I buy the Palm Pilot will I really use it?”
“Will I be happier if I divorce him?”
“Will I be happier if I go out with Jane instead of Betty?”
“If I quit the job will I find a better one?”
“If I take the job will I be happy there?”
“If I marry Bill/Bonnie, will he/she be a good spouse?”
“If I have children, will they be born free of major defects?”
For these questions it is more difficult to determine what the right de-
cisions are because they include numerous variables that need to be
weighted and all possible options explored before such decisions are final-
ized. (Once a decision is actually made, most humans are unable to change
their minds because they will appear to be wrong in their own minds, to
their peer group, or society in general.)