Behavioral Economics Can Really Pay

I am endlessly fascinated by the field of behavioral economics. Discovering when people are more or less likely to make rational decisions can really pay off in the real world. An interesting example comes from CNN Money. When negotiating a salary:

A recent study out of the University of Idaho found that making a joke about a million-dollar salary actually increased subsequent offer amounts by more than 10%.

The hypothetical applicant in the study’s test scenario was an administrative assistant candidate who had listed her last salary as $29,000. When asked what salary she wanted in the new job, she either demurred or quipped, “Well I’d like a million dollars, but really I just want what’s fair.”

In the cases where the applicant declined to name any number, the average salary offer was about $32,500. When she joked about a million bucks, the average offer rose to almost $36,200.

The increase is a function of a psychological effect known as “anchoring.” “When we encounter a number — even an irrelevant number — we fixate on it, and it influences our judgment,” says Todd Thorsteinson, a psychology professor at the University of Idaho and the study’s author.

So remember that when you are negotiating your next salary. The anchoring principal can be a powerful tool.

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