I have recently gotten hooked on ABC’s Shark Tank (based on the original Dragon’s Den), a reality show in which rookie entrepreneurs seek investments from wealthy self-made investors. These investors are the titular “Sharks,” who receive investment proposals ranging from a folding guitar company to a business in cat toilet-training kits. Once a sales pitch is made, Sharks can offer to invest, and will sometimes compete with one another for the opportunity. At times, the entrepreneurs leave with nothing, and occasionally they are laughed off the stage.

One lure of Shark Tank is the way it puts the psychology of negotiation on display. When entrepreneurs enter the “shark tank,” they put forward an offer, asking a specific amount of money in exchange for a percentage of equity in their company. (Dividing the dollar amount by the percentage stake provides an estimated valuation of the company.) This offer serves as a powerful anchor for both parties, which can exert a dramatic influence on the subsequent negotiations.

In spite of their own appetites for money, when an entrepreneur presents an inflated valuation of their company, Sharks often pass up the investment opportunity. For instance, if an entrepreneur asks for $100,000 in exchange for a 10% stake in her company, but the Sharks estimate the company’s worth at far less than a million dollars, they may back out brashly rather than make a lower offer. Although an inflated valuation may indicate poor business sense on a contestant’s part, it often seems that the Sharks’ decisions to pull out in scenarios like this are based on emotion rather than business savvy.

On the other hand, sometimes a Shark’s initial offer appears to bias an entrepreneur against considering other options. An offer that demands double the equity for the same cash investment may appear unfavorable when, in fact, the initial valuation was off. When a Shark offers to buy a business outright and pay the founder royalties, entrepreneurs tend to reject the proposition, even if it makes financial sense. The entrepreneurs clearly have more invested in their ideas and products than dollars and cents.

The show exposes some interesting contradictions. The Sharks are personable, yet they attack at the first scent of weakness. Kevin O’Leary, the bombastic Shark known as “Mr. Wonderful,” claims that “it’s all about MONEY,” but at times even his emotions seem to cloud his judgment. In other situations, a compelling performance by a contestant is enough to sway the Sharks’ minds, even when the sales figures don’t.

Then again, perhaps letting emotions factor into negotiations is not such a bad idea. It would probably be unwise to go into business with someone with an established negative rapport. A waffling sales pitch may indeed predict wishy-washy behavior in future negotiations, which might seriously hinder business prospects. And perhaps an entrepreneur’s “gut” is actually guiding him in the right direction when he rejects a Shark’s offer. It is, of course, impossible to know for sure, but it is this fascinating blend of calculation and emotion that keeps me swimming after this show’s bait!

~Heather Mann~

As someone who has an advice column of my own, I feel particularly sad that one of the most insightful and influential advice columnists — Pauline Phillips (Dear Abby) died earlier this week. As a tribute to her wisdom, and life, here is one of her favorite responses:

Dear Abby: Are birth control pills tax deductible? — Bertie

Dear Bertie: Only if they don’t work.

For more about the life and contribution of Dear Abby, see this article.

There are times when uncertainty is unbearable: waiting to hear about a school or job acceptance or pacing outside the operating theatre of a loved one. But other times we’re a lot happier being in the dark – or at least partially shaded.

Many of us have spent time beside a pool. And you have probably wondered: what are the odds that no kids have peed in the pool (or adults, for that matter). When pressed, we’d have to admit that the odds that the pool is peefree are close to zero, but the lack of absolute certainty allows us to relax and swim anyway. We may comfort ourselves with some fuzzy thought about chlorine or the immense volume of the pool relative to a few bladders, and our concerns slip away.

Now, compare this with watching a kid stand by the pool and pee into it. Throw in some swimming trunks around his knees and a frantic, embarrassed parent scooping him up, alas, too late. Now you’re no longer able to hold onto the slight possibility that the pool is free of urine. The relative volume of the water in the pool is now little comfort when you just saw a kid pee in it. So, how happy are to take a quick dip?

When things are very close to being certain but we are still able to pretend otherwise, we are experts at using this window, small though it may be, and expanding it. For example, lots of people don’t wash their hands after visiting the lavatory, we all know this, but we can happily imagine that everyone that cooks and serves in a restaurant we patronize does. At least until we see a server leave the stall, straighten their shirt in the mirror, and walk out without so much as a rinse. Dinner is served ruined! It’s only when we face direct evidence like this that we can no longer put our heads in the sand.

This also happens on a broader scale when we hold something or someone in high esteem and then something undesirable happens. Consider the five second rule for food: it’s just enough time that we can pretend that nothing has sullied our snack. Or think about people who “go vegetarian” after reading books like Eating Animals, as opposed to their friends who choose not to read it (sort of like poolgoers who look the other way in order not to see the kid in action). We could also consider all the people on both sides of the political spectrum who don’t listen (with any degree of earnestness) to the opinions and facts presented by the other side.  Ignorance may be bliss, but often it’s just a speck of reality that ruins our ignorance.

JP Morgan Chase’s loss of several billion dollars in 2012 was a similar situation. It’s difficult to imagine that over the last five years we were able to view any company as relatively pure, which is how many viewed JP Morgan Chase. It seemed likely that they, like other banking companies, probably had some skeletons in their closet, but we didn’t know for sure, and so they continued on with their relatively good reputation. In the race to the bottom of the banks, JP Morgan Chase’s CEO Jamie Dimon got the best title a banker these days can get: “the least-hated banker in America”. Now we have about three billion dollars to prove the contrary.

While it’s true that for a company that size, three billion a relatively small amount to lose (and surely their accountants could have hidden it), the problem is that now we have direct evidence that they’re not perfect. Once again we were forced to see reality, and we can no longer avoid the knowledge that the pool is polluted – even if the damage was done by the least-hated character. And I suspect that for many the events at JP Morgan Chase further polluted not only their opinion about that company, but also about banking generally.

Recently published in Wired UK.

Here’s my Q&A column from the WSJ this week — and if you have any questions for me, just email them to AskAriely@wsj.com.

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Dear Dan,

My best buddies and I have a tradition of going on a one-week ski trip once a year. We’ve been doing it for most of the past decade. The idea is that it’s just us guys on the mountain, enjoying the good company and snow. We cherish these moments and can’t wait for the week to arrive every year.

The problem is that once we land at our ski destination, time seems to go by at light speed. The week ends amazingly quickly and when we look back at our time together it seems even shorter. I know that “time flies when you are having fun,” but is there a way to perceive the week as longer?

—Avi

Given the way you phrased the question, the answer is simple: Take your wives with you. (Sorry, I couldn’t resist.)

But more to the point: I suspect that one of the reasons that your vacations seem so short, both in the experience and in your memory after the fact, is because the days of skiing are so similar to each other that they blend together in your memory into one very long day rather than a weeklong vacation.

On your next trip, try to make the days more differentiated from one another. Try snowboarding one day, take a lesson on another day, or just change your ski equipment from time to time. You could take a day off from skiing and go sledding or meet the locals. The point is that even if some days wind up with activities that you enjoy less at the moment (like bowling, for example), the ability to differentiate that day from the other days will help you categorize the vacation as a series of distinct experiences instead of one big glob of skiing. This way, you will get more joy from the memory of these experiences.

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Dear Dan,

A few weeks ago in your column you suggested spinning a penny as a way to make decisions between two similar options. You argued that having to face the moment of truth makes us realize what we really want as the outcome.

This approach might be useful when deep down inside it is clear which way you want the penny to fall, but what about decisions where what you desire is not good for you? For example, when the decision is between chocolate cake and fruit. In this case, you know very well how you want the coin to fall, and flipping the coin doesn’t seem to be very useful.

Any advice on how to deal with such conflicts between the head and the heart?

—Gavin

You’re right. The coin trick is indeed only useful for cases where the two options are of the same type (two cameras, two movies, etc). In your example, one option is more tempting in the short term (chocolate cake) while the other is better in the long term (fruit). In such cases we should not trust our gut feelings to drive us to the best decisions.

Looking around, it is easy to see that we often succumb to temptation and take the option that has short-term benefits and long-term downsides (in your example, this is the chocolate cake). The basic problem is that when we make such decisions we are often “under the influence” of the chocolate cake. Its closeness blinds us to the comparative long-term benefits of a piece of fruit (or, simply not eating the cake). So what can we do? Every time you face such decisions, pretend that it is not about what to do now but what you would like to do a week from now. For example, think of the choice between chocolate cake and fruit for dessert as a decision that you are making for exactly one week from today. When the choice is framed this way, you might be more able to override the influence of your current emotional state and pick the option with long-term benefits.

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Dear Dan,

I just bought a pair of basketball tickets and I plan to treat my friend to an afternoon of slack-jawed wonder as Kevin Durant dismantles our hometown Raptors. Here’s the thing: My friend is very generous and semiwealthy. If I tell him the tickets are on me, he’ll insist on paying…but if I tell him the tickets were free (the only way he’ll let me off the hook about the price), I’ll lose that weird cachet that comes from giving an expensive gift. What to do?

—Gil

Here is what I would do: Take your income per month (for simplicity, say $10,000) and divide it by the cost of the two tickets (again for simplicity, say $200). Now multiply this number by the number of hours you work per month (let’s say 160), and you get the numbers of hours that you need to work to pay for the tickets (3.2 hours in this case). Now, tell your friend “it took me more than 3 hours of hard labor to get these tickets.” (After all, you might not want to tell your friend exactly how much you make.) With this kind of framing, not only will your friend not be able to pay for the tickets, but he will also appreciate your investment in him and your friendship to a higher degree.

See the original article in the Wall Street Journal here.

Runners run, teachers teach, and cheaters cheat. It’s all there in the name, right? Despite the obvious logic, one could argue that even those who aren’t “runners” per se do, on occasion, run (even if it’s just across a busy street), and that we all occasionally teach our kids or friends something they didn’t know before. So what about cheaters?

I’ve written at (book) length about how all of us lie and cheat a little. Sometimes we’re unaware of it, as is the case when we have a conflict of interest or begin believing exaggerated versions of our own stories, and sometimes we’re not. Raise your hand if you’ve ever kept extra change after buying something or told someone you were busy when you weren’t. Exactly. So how does identity (whether it’s “liars” who do these kinds of things or just people who occasionally lie) play into cheating? If someone insinuated that you were a cheater before you even had the chance to bend the rules, would it make you cheat more, less, or the same?

A new experiment shows that unlike the swimming swimmers and baking bakers, would-be “cheaters” actually cheat less. In a series of three experiments, participants were given a chance to claim unearned money at the expense of the researchers.  There were two conditions in each experiment, and the only difference between them was in the wording of the instructions. In the first condition participants were told that researchers were interested in “how common cheating is on college campuses,” while in the second, they wondered “how common cheaters are on college campuses.”

This is a subtle but, as it turned out, significant difference. Participants in the “cheating” condition claimed significantly more cash than those in the “cheater” condition, who, similar to when we tempted people who had sworn on the bible, did not cheat at all. This was true in both face-to-face and online interactions, indicating that relative anonymity cannot displace the implications of self-identifying as a cheater.  People may allow themselves to cheat sometimes, but not if it involves identifying themselves as Cheaters.

It’s an interesting twist in the complex tapestry of cheating behavior, and I think it could be a useful means of curbing dishonesty; maybe beginning tax documents with a warning that “liars will be prosecuted” would help keep people from lying on their tax returns. Or maybe I’ll try having students recite the old cheater, cheater, pumpkin eater rhyme before tests… although “pumpkin eater” may not be much of an affront to the post-kindergarten set.

Here’s my Q&A column from the WSJ this week — and if you have any questions for me, just email them to AskAriely@wsj.com.

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Hi, Dan!

Every year it’s the same problem: My husband and I struggle to get his dad a few perfect gifts, only to see them sit unused for eternity. These are good things, too, expensive and high quality—specialty tools for his car, toolboxes, super-handy gadgets, etc. But years later, the tools sit there unopened and the toolbox has dust on it. He still carries his broken wrenches and stripped screwdrivers around in a ripped plastic sack!

OK, an old story, I know. But would it be so wrong if we just took the gifts back? He doesn’t want them. We could use them ourselves. Since the objects were “ours” at one point, we feel that we still retain some residual interest in what happens to them. Is it because we invested so much thought and effort in acquiring them?

Thanks for all your good works, and happy holidays!

—Veronica

No, you may not take the gifts back. (Note that I didn’t write “your gifts,” because I don’t think you should picture them as yours.)

The sad thing is that you and your husband feel unappreciated because your thoughtful and expensive gifts are not bringing the dear old man the happiness that you hoped to give him. Instead of taking the gifts back, I would try to increase the likelihood that the tools will get used. First, I would take them out of their packaging and replace the old tools in his plastic sack with the new ones—thereby making the act of using them more likely. As for the old tools, just put them in the attic for now.

If your father-in-law protests, I would restore his old tool kit and suggest spring cleaning and the donation of unused household goods to a local charity. He might be willing to give the new tools up for a good cause. And if that doesn’t work, stage a robbery and steal them, leaving cash and other valuables untouched. The added benefit of this approach is that it might also show your father-in-law how valuable your gifts are.

As for this year, buy him something that gets better over time, such as good whiskey or wine. That way, if he doesn’t use it, it will at least grow in value and not bother you as much.

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Dear Dan,

I bought two bottles of wine at a wine store that was running a “Buy one, get another for five cents” deal. The first bottle was priced at $16.99. I bought the second one, a different wine but listed for the same price, for five cents.

If I’m going to take one of the bottles for a holiday dinner at a close friend’s house, which wine should I take? Will the fact that I paid only five cents make me take that one over the full-priced bottle?

—Rags

We’ve known for a long time that there’s a correlation between what you pay for a wine and how good it tastes to you, but this correlation only exists, of course, when people know the price. As Robin Goldstein from www.fearlesscritic.com has shown, when people don’t know how much a wine costs, there’s no correlation between the price and how good they think it is.

Taking this into account, the first question you should ask yourself is whether to tell your friends about the cost of the wine or not. If you don’t tell them, then there’s no problem—just take the cheap one. It is true that by knowing the price that you paid for it, you will enjoy it less, but everyone else will be just fine. On the other hand, if you decide to tell them the price, I would suggest bringing the $16.99 Bottle, and maybe even include the cost of driving to the wine store.

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Dear Dan

Do you believe in New Year’s resolutions?

—Janet

Yes. Every year for about a week: for about five days before New Year’s Day and for about two days after.

See the original article in the Wall Street Journal here.

When faced with a decision (e.g., like what to do on a week night), our final decisions are based less on what options are available, and more on what options we consider.

The options that come to mind most easily are the options that form our consideration set, and then we choose from that set. The problem is that often our consideration sets are limited—we are tired, we are in a “week night” state of mind, or we have only seen advertisements for certain things lately.

To increase your happiness, keep a running “to do sometime” list of things you want to do. That way when your consideration set fails to include a highly desirable option, you can simply turn to your this list for an idea.

For the original research on this topic, see: http://www.haas.berkeley.edu/Courses/Spring2000/BA269D/Negungadi90.pdf

~Troy Campbell~

Sometimes people ask me what I like to read. Sadly, I don’t have a lot of time to read non-work related things, but here are a few of my favorite lie- and liar-based texts!

1)   The complete works of Sigmund Freud.

A list of the best books related to human nature, lying, and cheating would be nowhere without Freud and the explanatory power of rationalization. I know I should choose just one of them, but I’m not at home and can’t look through my books, and it’s been so long since I’ve read them, and I think I lost my notes…

2)   Three Men in a Boat (To Say Nothing of the Dog) by Jerome K Jerome.

My abiding love for this particular book has to do with many things—its comical style has aged well these last 100 plus years. Moreover, Jerome nicely captures our tendency toward dishonesty; we’re all a little dishonest, but only inasmuch as we can justify to ourselves:

“I knew a young man once, he was a most conscientious fellow and, when he took to fly-fishing, he determined never to exaggerate his hauls by more than twenty-five per cent… “But I will not lie any more than that, because it is sinful to lie.””

3)   A Million Little Pieces by James Frey.

A monument of embellishment, this highly fictionalized nonfiction account of Frey’s life offers a fresh take on the stories we tell to and about ourselves, that is, he shows us that people don’t just lie to make themselves look better. Where most people would elide events, Frey makes them more violent and grotesque. But of course, he had a whole lot to gain from doing so.

4)   How to Lie with Statistics by Darrell Huff.

I think it’s important to acknowledge that the scientific process, though we often look to it as revealing the truth about the things around us, is also full of problems. Duff sets about showing, in highly comedic fashion, how to skew a sample population, alter graphs to belie findings, disguise the actual nature of the claim, and so on.

5)   White Coat, Black Hat: Adventures on the Dark Side of Medicine by Carl Elliott.

Conflicts of interest, which are everywhere, underlie a lot of unintentionally dishonest behavior. This book takes a good, long look at the ways they bedevil medicine and create an amazing array of problems for everyone involved – with a very high cost for patients and society.

6)    The Adventures of Huckleberry Finn

Huck begins his narrative with the nature of lying and authorship: “There was things which he [Mark Twain] stretched, but mainly he told the truth.  That is nothing.  I never seen anybody but lied one time or another…” We can learn a lot watching Huck navigate the tricky of nature of truth and deception as he navigates the Mississippi, which is, incidentally, an adventure he inaugurates by faking his own death.

Happy reading!

Arming the Donkeys this week features Mike Norton of Harvard Business School. Mike and I discuss research on self-deception, and explore some of the ways in which we justify morally questionable behavior to ourselves — as well as some of the the psychological costs and benefits of this self-deception.

Here’s the link: https://itunes.apple.com/us/podcast/were-only-fooling-ourselves/id420535283?i=126244443&mt=2