Negotiation Smarts

This month's Harvard PON Negotiation Newsletter reports on a new study by Asst Prof. Shane Frederick of Boston's MIT Sloan School of Management in Cognitive Reflection and Decision Making.

This short problem-solving test, he found, predicts a lot.

Take the test and then click on add my vote/show results to see if you score with the majority or not;




Of the 3,000 MIT students tested, fewer than half gave the correct answers. At other schools, less than 10% had perfect scores.

Next Frederick compared the decision making skills of those who scored well on the first 3 questions and those who didn't.

He then asked questions similar to the last box - how they would choose between various financial pay-offs and he found from these subsequent questions that high scorers in first 3 questions prefer taking risks.

"Even when it actually hurts you on average to take the gamble, the smart people, the high-scoring people, actually like it more,"

High-scorers are also more patient, particularly when the difference (and the interest rate) is large. For instance, choosing $3400 this month over $3800 next month implies an annual discount rate of 280%.

Yet only 35 per cent of low scorers, those who missed every question, said they would wait, while 60 per cent of high scorers preferred the later, bigger pay-off.

So if mediation parties are intelligent, they are more likely to take risks with some gender differences to watch for.

High-scoring women show slightly more willingness to wait than high-scoring men, while the differences in risk-taking are much larger. High-scoring women are as willing to gamble as low-scoring men, while low-scoring women are even more risk-averse.

The correct answers, by the way, are 5 cents (not 10), 5 minutes (not 20), and 47 days (not 24)... and almost a third of high scorers preferred a 1 per cent chance of $5000 tomorrow to a sure $60 today.