How Seller and Buyer Motivations Differ

Anyone who's ever bought anything at a flea market or dealt with a real estate agent knows that the buyer and seller have different incentives. The buyer wants a great deal; the seller wants to make a profit.

How the brain works in the negotiating process is poorly understood. Now, a new study in the journal Proceedings of the National Academy of Sciences provides new insight into how the brain responds to the challenge of getting a desired price and, specifically, in deceiving the other party.

Scientists from Baylor College of Medicine in Houston, Texas, and California Institute of Technology set up the following scenario: The participant, the buyer, is told the value of a hypothetical object. Then, the buyer must suggest a price to the seller, who returns with a counter offer. This game is played 60 times between each buyer and seller.

If the seller's price is less than the value, the trade occurs and the buyer receives the difference between the value and the selling price. But if the seller's price is greater than the value, then the trade does not go through, and no one gets anything. Neither player knows whether the trade actually happened, however.

Researchers found that people assigned to be "buyers" respond to the situation in one of three ways: there's the incrementalist, who consistently applies the same percentage to the known value - such as 1/2 or 1/3 - and is honest with price suggestions. There are the conservatives, whose suggestions don't say much about the real value, and sometimes just suggest the lowest price every time. Finally, the strategic deceivers, representing only 11 percent of the sample, always suggest a price that is negatively associated with the value: in other words, high prices for low values and low prices for high values.

The strategic deceiver method is the optimal one, because it fools the seller, who is led to trust the buyer with the highball offers, into later believing that high-value objects should have low prices. "I tried to throw off [the] seller by saying the low things were high," one subject wrote.

Looking at the brains of the "buyers" through functional magnetic resonance imaging (fMRI), it appears that those who play as strategic deceivers have more activity in the regions of their brains involved with thinking about other people's thoughts, said Read Montague, professor of neuroscience at Baylor College of Medicine and co-author of the study.

Specifically, the part of the brain involved is called the right temporal parietal junction. It gets activated when you hear stories about other people, Montague said.

Interestingly enough, the higher the response in this brain region, the higher the expected payoff in the trade, he said. That means brain activity in this area actually corresponded with the buyer's expected profit in the negotiation.