Critical Decision Making - Risk or Opportunity?

Who has not experienced this scenario: A buyer seems committed to the buying process, the home inspection is done, repairs are negotiated, and yet - at the last moment, the buyer gets cold feet for no apparent reason and wants to pull out, willing to sacrifice the earnest money. What is going on here?

That is the moment, when we really earn what we're worth: How we frame the situation in the buyer's mind affects the outcome.

This is the valuable lesson I learned reading: Kahneman and Tversky, Choices, Values, and Frames.

Framing matters a great deal.

Frames are mental structures - beliefs and assumptions - that simplify our understandig of the world around us and help us make sense of it as we decide and act. Frames enable us to deal with compelxity without being overwhelmed by it. However, the frames can also be quite constricting because of well established routines when faced with a threat.

The way we frame a problem drives the types of solutions that are considered. Is a problem framed as a threat, or as an opportunity? Framing affects our propensity to take risks - and buying a house can be a risky business.

 If we frame a situation in terms of a potential gain, we act differently than if we frame it in terms of a potential loss. So, telling a buyer that he will lose a certain house if he does not make an offer right away might be true, but can actually have the opposite effect - the situation is framed as a potential LOSS (sometimes rationalized by not wanting to end in a bidding war).

In the case of the buyer getting cold feet, we need to help him define a problem in several different ways, because each definition tilts toward one kind of solution. Most of us are slightly risk averse, and getting cold feet when the risk factor dawns on this buyer, is not surprising. When faced with threat/risk, we tend to respond rigidly, but act more flexibly and adaptively if the same situation is framed as opportunities.

Here is the skinny of it all: Help the buyer assess the level of threat - the level of risk, but then reframe the situation as an opportunity to achieve what he or she wanted to do in the first place before getting temporarily derailed.

Language - Framing - matters a great deal as it shapes the way we look at a situation and has a powerful effect on our decision making.