Imagine you're renovating your kitchen, and let's say you have two quotes. One contractor estimates that the job will cost $12,000 and is asking for a $6,000 deposit. The other contractor quotes $10,000, but wants a hold on the entire amount from the outset. As far as you know, they're both good at what they do, so quality isn't an issue.
So which contractor do you choose?
Even though it requires a higher upfront payment, you might be tempted to go with the $10,000 quote. After all, it is cheaper.
Surprisingly, however, recent research into negotiations behavior suggests you're less likely to get cheated if you go with the first contractor.
Why? We really hate to lose what we already have
It's a long-standing principle in behavioral economics that the pain of losing causes a stronger emotional reaction than than the joy of winning does. As it turns out, we dislike losing so much that we're more likely to cheat in situations where we have something to lose just so we don't have to experience this pain.
In a study that analyzed the effects of perception on cheating behavior, researchers from France and Germany found that perceiving a situation as a loss resulted in significantly more cheating behavior to avoid further losses, especially in a setup where the subjects were guaranteed not to get caught.
What does that mean exactly?
In our example, the second contractor stands to lose by having to reimburse you some of the money if the cost of the job falls below the stated cost (I hear the groans from those who have dealt with renovations, but please bear with me for the sake of example). Returning money you already see as yours is painful, so he or she will really want to avoid it.
On the other hand, the first contractor stands to gain by earning a fee on top of the deposit.
The implication? If you want to ensure that your contractor -- or anyone else for that matter -- plays fair, set them up to gain. Make sure they never feel like they have to give something back, or return something to you. Instead, arm them with the perception of winning even more as a result of your relationship.
Is that it?
Of course, you could just aggressively monitor everyone you do business with, including double-checking the prices your contractor quotes and doing surveys about how much they're paying for labor.
But this is not only painful from a practical standpoint, it's time consuming. The fact is that if you want to get anything done you have to trust that people are, for the most part, behaving well.
Thus, in any situation where you don't have 100% control, the best way to ensure that others behave well is to associate your terms with having something to gain. It won't eliminate every incident of cheating, but it will encourage the majority of people to play by the rules.
It's a very simple adjustment that can have a huge impact, not only in your kitchen, but in your personal and professional life.
Anna Wroblewska has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Ford and Tesla Motors. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.