You and your customers are subject to a vast range of biases, more than we could ever hope to address in depth in our book. It would be both overwhelming and impractical for any book to help you tighten every mental bolt and screw so that you become aware of all your own biases, learn to resist them, learn to identify them in others, and then learn to apply that mastery and control to make your own negotiations more successful.

That forced us to decide which biases you should not only learn first, but also learn so well that you can try to make their use second nature. In this chapter we look at two important biases that directly and significantly affect how much money the parties will exchange in a negotiation. These biases are the zero-risk bias and the present bias. In layman's terms, they translate into power of free and the power of now.

Understanding and controlling these two biases will help you avoid the risks – the fears, game-playing, and price erosion – that conventional forms of discounting can lead to. Learning to say ‘no’ – one of the main accomplishments from Part II – does not mean that discounts have absolutely no role to play in a sales negotiation. When used in the right way and in the right context, they can help you defend prices, make customers happy, and encourage a longer-term relationship or partnership instead of a transactional one. In this sense, discounting is not a disease or sickness, but rather the science of giving money away for your own benefit.

The power of free

The cliché ‘There's no such thing as a free lunch’ condenses so much economic wisdom that Milton Friedman, the 1976 Nobel Prize winner, used it as the title for a book he published in the mid-1970s. It means that when someone receives a good or a service for free, someone ends up paying the bill or bearing the costs. That could even be the recipients themselves, who pay indirectly or pay later.

Does that mean that offering something for free is always a mistake? If so, it seems as if companies that we encounter every day as consumers are making a lot of mistakes! Amazon Prime is famous for its offer of ‘free shipping’. Most retail stores have some variation of a ‘buy one, get one free’ offer. Even a small business such as a sandwich shop or a car wash will have a loyalty card that gives you something free when you have ordered, say, 8 sandwiches or 10 car washes.

System 2 tells us that free is nothing more than a price of zero. When homo economicus weighs benefits and costs, for example, free enters the calculus as a cost of zero. But Kristina Shampanier (MIT), Nina Mazar (University of Toronto), and Dan Ariely (Duke University) sensed that free exerts a stronger influence on decisions than people might suspect. In their study published in Marketing Science, they concluded that ‘people appear to act as if zero pricing of a good not only decreases its cost, but also adds to its benefits.’¹ Free, in other words, has a positive intrinsic value all its own. Situation 16.1 provides an example.

The power of now

The technical term for the power of now is hyperbolic discounting.³ Situation 16.2 describes one of its most common applications.