Readers of my blog probably realize by now that one of my favorite topics is cognitive biases which “…refer to a range of systematic errors in human decision- making from the tendency to use mental shortcuts. ( “How Common Mental Shortcuts Can Cause Major Physician Errors” by Anupam B. Jena and Andrew R. Olenski, New York Times, February 20, 2020).

As the article notes, merchandisers take advantage of this bias by offering products for “$4.99” rather than “$5.00.”. Although, these two prices are only one penny apart – in our minds, we seen a much larger difference. It is, indeed, psychological and an error in our judgment.

But, the article got me thinking that this left digit bias- is in all probability- quite prevalent in negotiations. When monetary demands and offers are being made, parties do tend to dwell on the left digit of the amount at issue. For example, there is a huge psychological difference between offering an amount of $9500 and $10, 000.  While the actual difference is only $500, the mindset of the party sees a huge difference between the “9” and the “10”.  I have seen this often with respect to any two numbers where one may be in the high teens (e.g. 18,000 or 19,000) and the other starts with a “2”- 20,000 or above.  I suspect this is true with any two numbers be they in the hundreds of thousands or millions. That first digit or left digit in the monetary amount – for some psychological reason- makes a huge difference in a party’s decision to accept or reject the offer even though, in reality, the difference is only a few dollars!

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