This week, I’ll talk about the second principle: “reciprocation.” According to Cialdini, the rule of reciprocation states that “we should try to repay, in kind, what another person has provided us.”
As with the five other principles, this one is very useful in most life situations. If someone gives us a birthday gift, we will of course feel somewhat obligated to return the favor on their birthday. In fact, when someone fails to reciprocate, we tend to view them as stingy or selfish. Our economy—even our social structures—largely depends on the principle of reciprocation: we assume that the services or favors we offer to others will be returned someday. Without this assurance of reciprocation, our society and economy would stop functioning and descend into chaos.
To avoid owing anything to anyone, some people try to systematically refuse gifts or offerings from others. That is one of the reasons why I decided many years ago to stop meeting with the executives of companies in which we might invest (although we still do it occasionally). Besides the fact that I believe these executives will generally tell us what we want to hear, the simple reality that they travel, spend a few hours of their valuable time meeting with us, and answer our questions makes us, in a way, indebted to them. Psychologically—and often unconsciously—this kind of situation biases our decision to invest or not in the company. It becomes harder not to invest in a business toward which we feel indebted.
The feeling of being indebted to someone is very unpleasant, and we will usually try to repay that debt as soon as possible. Often, this principle can lead to unequal and unfair exchanges. For example, your real estate broker sends you a birthday card every year—a small expense for them. But when the time comes to sell your house, you may feel indebted to that broker, potentially earning them a commission worth tens of thousands of dollars.
Companies regularly use the principle of reciprocation to increase revenue. I’m thinking especially of the many products offered as free samples to customers in stores. If you taste a sample of a new chip flavor at Costco, your chances of buying a bag will increase significantly, because you’ll feel a bit indebted to the person who served you the free sample.
Dr. Cialdini explains that the principle of reciprocation is particularly powerful and often leads us to accept proposals we would likely have refused had we not felt morally indebted.
We also feel obligated and inclined to make a concession to someone who has made one to us. The “rejection-then-retreat” technique described by Dr. Cialdini is a good example of a concession tactic used by salespeople to push you to buy. If I want you to buy something, an effective technique would be to make you an initial, unreasonable offer, which you’ll probably refuse. I’ll then offer you a less expensive proposal, which I’ll present as a concession on my part. This concession will likely prompt you to accept the second offer as a “compromise,” even though it was the offer I wanted you to accept from the start.
Another example from the investment world concerns the invitations brokerage firms regularly extend to portfolio managers. Although such invitations to dinners, shows, or rounds of golf are quite normal in business, I suspect that their primary motivation is to boost brokerage revenue by making the recipients of those invitations feel indebted. For many years now, we have largely stopped accepting such invitations at COTE 100—and we’re better off for it.
How can we say no to the rule of reciprocation? This rule states that we should repay favors with similar favors. However, it does not say that we should repay tricks or manipulations. According to the author of Influence, the key is to distinguish between genuine favors and manipulative tactics intended to pressure you into acting contrary to your normal judgment.
Philippe Le Blanc, CFA, MBA
Chief Investment Officer at COTE 100
_______
Philippe Le Blanc’s Blog is published in
