Salary Negotiation, Mental Accounting, and Present Bias
1.Watch this video on anchoring: https://www(dot)youtube(dot)com/watch?v=igv_O-azRUc
After watching this video answer the following questions:
A Let’s say you are negotiating salary with your employer. According this video who should make the first offer: you or your boss? Why? (the why is the most important part)
B Adam Grant in the video talks about how he worked against anchoring when he leased a car. What does he say?
2. Watch this video of Dan Ariely on mental accounting. https://www(dot)youtube(dot)com/watch?v=plvmigGxUZA
Explain what happens when we lose a 100 dollar theatre ticket versus lose 100 dollar bill. Why do we do this?
3. How are you guilty of mental accounting? Give a personal example if you can.
4. In the example at Berkeley (in Lecture 2), the students had completely different responses when they were in the aroused state as compared to the unaroused state. Indeed, we are very different people when we are aroused, angry, hungry or tired (in hot states). Yet utopian finance and economics assumes that we are always in the cold state and ever in these hot states. Give an example when you have been in a hot state in which you acted much differently than normal.
5. Watch this really short video on present bias: https://www(dot)youtube(dot)com/watch?v=JzKix2xWmJI Then answer the question of how you are guilty of present bias?
6. In the video I asked you to watch on slide 230 (of Lecture 2) what did Ariely find about the nudge in organ donations in two countries?
Institutional Affiliation
Name of the Facilitator
Course Code/Name
Due Date
Week Nine Discussion
Question One
A: When negotiating salary with my employer, I should be the one to make the first offer. The first one to make the offer sets the tone of the negotiation. The employer will tend to lower the bar to what suits them, leaving me cleaved in accepting an offer that does not fit my needs and standards. Making the first offer will make me establish the tone of the negotiation and make me appear to be ready. In case the employer makes an unreasonable offer, I will ask for some space to do my research on the offer.
B: Being a behavioral finance expert, Adam Grant knew how to handle the situation when leasing the car. When the car dealer mentioned a price higher than his expectations, Adam Grant read his mind before giving a rational answer on the price. What he did was very wise. He proved his prowess in handling the anchoring trick used by car dealers. After that, they had a mutual understanding, and the negotiation turned out to be the best Adam Grant has ever had.
Question Two
When we lose a one hundred dollar theatre ticket versus a one hundred dollar bill, the way we behave is completely different. When one loses a one hundred dollar theatre ticket, he will spend more money buying another ticket. After that, one tends to say that they spent two hundred dollars on the theatre ticket for the event. On the other hand, when one loses a one hundred dollar bill, they are likely to feel the loss and not spend more money. In this scenario, the pers...