UK: Negotiations: Why Do We Hate To Lose?

Last Updated: 13 March 2019
Article by Leonore Dupont

Negotiating is a part of life. Whether it's a two year old toddler trying to 'negotiate' her way out of eating those vegetables at dinner, a tourist haggling in an Asian bazaar, a salesperson trying to seal the deal or a business executive attending a mediation to resolve a dispute, it permeates every aspect of our lives. Everyone needs to negotiate for something at some point, be it when asking for a salary raise or trying to clinch a multi-million pound buy-out contract. But how effective a negotiator are you?

Human perceptions and instincts

The art of strategic negotiating is a learned skill. It is difficult to be completely objective, analytical and unemotional when trying to resolve a problem – particularly if you are personally invested in the outcome. Your personal perspective or viewpoint will have a significant impact on how you make decisions. For example, it is a proven phenomenon that a person will generally take greater risks in order to avoid a loss than to gain something – and the more meaningful the loss is, the more loss adverse a person will become. This principle (loss aversion) was first introduced by Amos Tversky and Daniel Kahneman in 1979 and its central assumption is that the perceived impact of a loss has a greater impact on the human psyche and human preferences than a gain.

In other words, losing £50 has more of an emotional impact than finding £50 unexpectedly: the risk of a loss hits harder. This is a concept that is applied in marketing goods on a daily basis. For example, how often do you see offers for a '10% discount'? Do you ever see shops marketing a product as 'having a 10% surcharge that is being waived'? This is because the language used to frame any choice matters more than you would suspect. When a person is faced with two equal choices where one is presented as a possible gain (i.e. the discount) and the other is presented as a potential loss (i.e. the surcharge), that person is more likely to choose the option suggesting a possible gain and shy away from the potential loss. It is also an international athlete saying "I don't care about winning, I just hate losing". We all hate to lose. This is a biased or irrational human reaction that affects all of us and which can impede your ability to negotiate effectively. Kahneman suggested that this reaction occurs because humans have two different ways of processing information: (i) the 'fast thinking brain' which is more inclined to impulsive, emotional and instinctive thoughts (think of it as part of the survival instinct); and (ii) the 'slow thinking brain' which is more reasoned, deliberate and logical and is engaged when thinking through a complex issue like which mortgage you will go for.

Kahneman suggested that this reaction occurs because humans have two different ways of processing information: (i) the 'fast thinking brain' which is more inclined to impulsive, emotional and instinctive thoughts (think of it as part of the survival instinct); and (ii) the 'slow thinking brain' which is more reasoned, deliberate and logical and is engaged when thinking through a complex issue like which mortgage you will go for.

Engaging your 'slow thinking brain'

Relying upon your 'fast thinking brain' during a negotiation can result in decisions being made based on the very natural instinct to avoid a loss – often at any cost, or at an unreasonable cost. This becomes even more difficult if – as is frequently the case – a person has invested a significant amount of time, money and/or reputation in addressing a dispute which is now the subject of a settlement negotiation. It is at this stage (in what is often a tense situation) that it is important to recognise that you (and your opponent) have an instinctive tendency to be loss adverse to some degree, and that you will generally focus more mental energy on attempting to avoid any potential 'losses' or 'negatives' at the expense of overlooking the benefits of a particular offer. The key skill here is to take a mental step back and engage your 'slow thinking brain' to do a thorough and dispassionate analysis of the pros and cons of any offers made in the negotiation and assess the probability of the various options/outcomes open to you. Equally, an awareness of this principle should result in extra consideration of the language used to frame any proposal that you might make in a negotiation thus increasing the chances of it being accepted. This is a learned skill that can take practice to develop fully – but the first step along that road is self-awareness and an understanding of why you hate to lose.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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