Prospect theory, the value of expectations. Facing people and the world from a risk perspective.

【Which is the “killer phrase” used by the expert negotiator: “I can increase sales by 10 million yen” or “I can reduce costs by 10 million yen”?】
https://president.jp/articles/-/75072

・Behavioral economics research shows that even in games with high expectations, many people do not participate in the game. They do not make rational “gainful” choices.

・The reason for this is that when we compare the possibility of gain and loss, we feel that we want to avoid losing. The theory that summarizes this “wonder of feeling” in which the fear of loss and regret are felt more greatly than the expectation of gain and the happiness of gain is called “prospect theory.

・From the perspective of prospect theory, it is better to say “You will gain! than “You won’t lose anything!” will give you the upper hand in the negotiation. Negotiations are more successful if you show that you will avoid a disadvantage (loss).

・Do you see risk as an opportunity to be acquired or as an object to be avoided? There are these two types of people.

・Find out in advance how the negotiating party perceives risk (which type of negotiator they are) and adjust the way you communicate.

These are the quotes from the article

Facing people and the world from a risk perspective

I am not a sales or negotiation person, but like the story in the article above, I think it is very important to observe people from a risk perspective.

Prospect theory is a familiar term to those who are involved in investments and other activities.

Prospect Theory

People do not take risks when they are gaining, but they tend to take risks when they are losing in order to avoid losses.

People are twice as sad when they lose as when they gain.

It means that people have this tendency to face risk with their senses. (Many people lose money on their investments because of prospect theory)

If I delve into prospect theory, I’m going to get a little off topic, so I’ll return to it.

Anyway,

Humans are hypersensitive to risk and have a strong tendency to not want to take risks (losses).

That is why,

The phrase “You will never lose money” is more appealing than “You will definitely make money.

The article above says to negotiate based on this, but it goes without saying that good salesmen, as well as scammers, take advantage of this. (There are a lot of scammers who say, “We won’t lose money.”)

I think it is necessary to take this into account when talking about sales (negotiations) as well as when being sold (negotiated).

Once again,

Tendencies in the human sense of risk, such as prospect theory

And,

What is the benefit of risk (loss) versus the benefit (expected value or risk reward calculation)?

These two things should be well understood (and grasped).

I know I am persistent, but let me restate,

When negotiating, proceed with the intention of saying, “No loss.

If you are told “no loss,” make a judgment as to whether this is true or not, properly calculating the expected value, etc,

This is what I mean.

In many ways, it is a world full of risks.

See you then.

The above discussion is mainly about money, but when it comes to risks other than money, it is difficult to calculate the expected value, etc. because it is hard to quantify. What constitutes risk varies from person to person. In the first place, is it correct to say that prospect theory also applies to risks that cannot be quantified? (Although it seems to work in a sensible way)