A former FBI hostage negotiator explains the psychology of negotiating using the example of a $3.50 mug

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Take the same person, change one or two variables, and $100 can be a glorious victory or a vicious insult.

Recognizing this phenomenon lets you bend reality from insult to victory.

Let me give you an example. I have this coffee mug, red and white with the Swiss flag. No chips, but used. What would you pay for it, deep down in your heart of hearts?

You’re probably going to say something like $3.50.

Let’s say it’s your mug now. You’re going to sell it to me. So tell me what it’s worth.

You’re probably going to say something between $5 and $7.

In both cases, it was the exact same mug. All I did was move the mug in relation to you, and I totally changed its value.

Or imagine that I offer you $20 to run a three-minute errand and get me a cup of coffee. You’re going to think to yourself that $20 for three minutes is $400 an hour. You’re going to be thrilled.

What if then you find out that by getting you to run that errand I made a million dollars. You’d go from being ecstatic for making $400 an hour to being angry because you got ripped off.

The value of the $20, just like the value of the coffee mug, didn’t change. But your perspective of it did. Just by how I position the $20, I can make you happy or disgusted by it.

I tell you that not to expose our decision making as emotional and irrational. We’ve already seen that. What I am saying is that while our decisions may be largely irrational, that doesn’t mean there aren’t consistent patterns, principles, and rules behind how we act. And once you know those mental patterns, you start to see ways to influence them.

Justin Sullivan / Staff / Getty ImagesBy far the best theory for describing the principles of our irrational decisions is something called Prospect Theory. Created in 1979 by the psychologists Daniel Kahneman and Amos Tversky, prospect theory describes how people choose between options that involve risk, like in a negotiation.

The theory argues that people are drawn to sure things over probabilities, even when the probability is a better choice. That’s called the Certainty Effect. And people will take greater risks to avoid losses than to achieve gains. That’s called Loss Aversion.

That’s why people who statistically have no need for insurance buy it. Or consider this: a person who’s told he has a 95 percent chance of receiving $10,000 or a 100 percent chance of getting $9,499 will usually avoid risk and take the 100 percent certain safe choice, while the same person who’s told he has a 95 percent chance of losing $10,000 or a 100 percent chance of losing $9,499 will make the opposite choice, risking the bigger 95 percent option to avoid the loss.

The chance for loss incites more risk than the possibility of an equal gain.

Excerpted from NEVER SPLIT THE DIFFERENCE. Copyright © 2016 by Christopher Voss. Reprinted with permission of HarperBusiness, an imprint of HarperCollins Publishers.

Chris Voss is the Founder and CEO of the Black Swan Group Ltd and author of "Never Split The Difference: Negotiating As If Your Life Depended On It." He has used his many years of experience in international crisis and high stakes negotiations to develop a unique program and team that applies these globally proven techniques to the business world.

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