PostsPercentage Masking
Posted 08/31/2015

Units Matter

A negotiator with power and leverage has a better chance of reaching a favorable outcome. The percentage mask, can be used to gain a leg up during the negotiation. Using a simple rule of thumb, the technique can be employed with ease. It can be used offensively or defensively.

The Percentage Mask

Percentage Masks are caused by dissonance between perceived values and actual values.

Numbers can be framed in many different ways. A 5% raise on a 50k base can be expressed as: +5k; 55k; 10%; $2115 per paycheck; +$115 per paycheck. Each variation conveys the value differently, and carries a unique perception. Decisions hinge off the perception of the offer.

Typically, a recipient of a raise deserves it, and the point of contention is the amount. A 10% raise could feel like a win, but a bump from 50k to 55k for an increased workload may feel like a ripoff. Both are the same value, but the perception of the value differs. This idiosyncrasy of our perception classified as a cognative bias called the The Framing Effect.

The Framing Effect can be especially dangerous when only one of the frames is presented to the decision maker. A percentage mask occurs when the percentage option is presented in isolation to a negotiating party. It alters the power balance because the value has varied appeal compared to its real number form.

Luckily, we can usually mentally approximate percentages. However, the translation is not for free. Calculations like converting percentages to real numbers have an associated Mental Accounting Cost. Our brains will allocate resources to translation, which could be used to maximize its negotiating position.

When the real number bases are equal, another danger occurs. 10% 10k seem equal until our brain converts the 10% to a real number. Since it takes our brain some time to grok a percentage, it falls susceptible to confusing its value. 10% gets perceived as equal to 10k, even if the 10% (of 50k) is only 5k. This is classified as another cognitive bias, The Money Illusion. In conjunction with the Framing Effect, this makes lone percentages especially powerful in negotiations.

With these concepts in mind, it is important to understand the perception of percentages in play during negotiations. Dr. Timothy Heath et al. study the effects of percentages in discounts. They recommend: 'if proportional (percentage) discounts are large, state them. If not, do not state them.' see here. As such, this rule should be employed in negotiations: Seekers should solicit percentages when values are greater than 100, and the opposite is true for those offering. The table below outlines the possibilities:

Grid For Unit Based Percentage Masking

This is the most important takeaway from the article. Everything else is explaining why this table is true.

Paradigm Unit > 100 Unit < 100
Giving Actual Percentage
Receiving Percentage Actual

In negotiations, whenever possible, use the favorable unit. If offered a 10% raise on 50k, counter with a 7k ask not 12%.

Bonus: Manipulability Indicator

Initial offers leave the negotiation at a crossroads. Will the counter offer be in a percentage or a static unit? It is up to the receiver to properly execute the next move.

Failure to do so, sends a signal of manipulability. Conversely, properly converting an offer shows, shows prowess in bargaining skills. The person translating to a favorable representation offers a question to the opposition: "Will you concede to my power?" Replying in favorable units conveys: "You tried to distort my reality, and I do not accept the distortion. If you try it again, I will do the same." Thus offering a warning to the opposed party to try manipulation tactics.

Conclusion

Using the percentage mask as a mental model should help guide negotiations and eek out extra points each time. At the very least, it should save a few points to someone else employing similar tactics. When a negotiating party is oblivious to the handicap the effect is amplified. Use the table provided as a rule of thumb to guide your unit choice in negotiations.

Resources

  1. http://biaslist.com A Great Site Explaining Cognitive Biases
  2. Mental Accounting and Changes in Price: The Frame Dependence of Reference Dependence
  3. Wikipedia: Framing Effect
  4. Wikipedia: Mental Accounting
  5. Wikipedia: Money Illusion