Heavy Anchors, Artistic Deals, and Looney Tunes

In November of 1987, some guy named Donald J. Trump published a book called "The Art of the Deal." In it, the now President-Elect discusses many different approaches to securing business ventures or as he would probably say it "closing HUGE deals."

One of the tactics Trump describes is a negotiation method where the negotiator intentionally marks up his original asking price. He does this so that when his opposition makes a counteroffer, it is with Trump’s initial high-asking price as the starting point for negotiation. As Trump explains, the guy on the other side of the table will take that into account and offer a higher counter-offer than he otherwise would have, had Trump’s starting point been lower.

Trump may not have known it at the time, but what he describes in his book is called "The Anchor Effect" by most modern day psychologists.

The famous example of the Anchor Effect is an instance where a pair of shoes in one store costs $300 and nobody is buying it, but then in a different store when the same pair of shoes was originally marked at $500 and put on sale for $300 they sell out. Obviously, this seems silly, because ultimately the two pairs of shoes cost the same amount. But when the $500 value is originally put on the shoe you can’t help but think you are getting a good deal. You might want to think about that the next time you buys something just because it’s 25% off.

I recently read about the anchor effect in a Journal of Advanced Research in Law & Economics titled: "An Analysis of Bounded Rationality in Judicial Litigations," by Eric Langlais. Professor Langlais leads the studies of economics, psychology, and legal proceedings as a teacher in the University of Paris. In his paper he makes mention of a number of cognitive fallacies or limitations. He generally discusses their pertinence to his fields of interest but I would like to apply them to Trump's campaign, policy, and transition period as president-elect.

But first, what is bounded rationality? It is the idea that in decision-making, rationality of the individual is limited by the information they have, the cognitive limitations of their minds, and the finite amount of time they have to make a decision.

Bounded rationality is a blanket term that encompasses many different cognitive fallacies including "Loss/Disappointment Aversion" and "The Anchor Effect." These are widely accepted psychological concepts that I have also found in the works of Daniel Kahneman and Amos Tversky. Trump took the Anchor Effect from the pages of his book all the way to his policy positions so many years later.

Trump was able to apply the concepts discussed by these psychological masterminds to his campaign and has continued to utilize them even now, in his transition period before officially being inaugurated as president. If you look at how Trump ran his campaign you will notice that he was generally all over the political spectrum. Sometimes he came out with a conservative policy and other times he announced his more liberal policies. Inconsistent.

But there was one thing that Trump was always consistent about. Namely, no matter where on the political spectrum any particular policy of his fell, it was at an extreme. He was always all the way to the right or all the way to the left. For example, he did not just propose to deport some illegal immigrants it had to be all of them. Banning Muslims from countries with a significant terror threat was not sufficient, it had to be Muslims from all countries. Placing a tariff on international trade wouldn't cut it, it had to be a massive 35% tariff.

Like I said, some of those policies are favored by the GOP and some of clearly lie on the Democratic side of the aisle (and frankly, some of his policies are neither). But they are all one thing--extreme.

The next obvious question is why. Why did Trump decide that the best move would be to come out with extremist positions? Why didn't he try to maximize his vote potential by releasing mainstream political opinions?

Because Trump knew that if he won the presidency after making these crazy policy proposals, then according to psychological research, he would have a relatively easy path to a decently successful presidency.

Trump already has an easy path to a moderately effective presidency. If he fulfills his campaign promises and repeals Obamacare and the Iran Nuclear Deal than people will praise him right from the start. With a GOP Congress, repealing ObamaCare should be easy, and through executive order he could pull out of the Iran deal on his first day. [Trump could pull out of the “deal” because the entire thing was followed through by the Obama administration through word of mouth. In other words, there is no written document signed by the Iranians and the American’s agreeing to what they have agreed too. So all Trump would have to do is reinforce the sanctions upon Iran that existed before Obama decided to cozy up to a bunch of mass murderers.]

But aside from those aforementioned policy alterations that should come simply, he has already set himself up for success for when he needs to negotiate with the other branches of government. Because during his campaign he has already anchored his positions and policies at such egregious points, his opposition will feel as though they got away with a victory when they bring his policy proposals down from where they currently stand.

In case I am not being clear, allow me to use the same examples I used earlier to illustrate my point. Since Trump anchored his deportation number at 12 million, his opposition would probably be appeased if that number was cut in half to 6 million. But on Trump's end, 6 million illegals deported is a win for his presidential resume. Furthermore, if Trump can freeze the immigration of Muslims from terrorist countries to America and concede that Muslims from peaceful countries can enter, Trump will be able to boast his triumphs as a president and his opposition will feel as though they dodged a bullet. I hope and assume that there is no way that the GOP Congress is going to impose a 35% trade tariff as it goes against what they believe in ideologically. But I am sure that if they are able to get Trump to settle at 15% they would find it more manageable.  The anchor effect.  Full throttle.

In this way, Trump has already set up the template that he will use to fashion his presidential legacy. Parenthetically, I believe that for Trump this is all about boosting his resume. It is clear to me--see my other work-- that Trump ran for president for purely egotistical and self-centered purposes. Also, if you don’t agree with that, then please see:

Trump the board game or Trump vodka. That should convince you.

Despite what he probably thinks, Trump did not invent his own negotiation strategy. It is one that has been rooted in the depths of the human mind for a very long time. But considering the fact that Trump's book was published in 1987, he clearly has known about these tactics since then. And based on the arguments I present here, I think it is than fair to say, that Trump's deal making, on the grand stage of the American government, will be something incredible to witness. And as an American I hope that it will be nothing short of the "art" that he discusses in his book.

Arguably the greatest proof of Trump's intention to use his original policy proposals as a starting negotiation point is what he has done since he won the presidency. Almost immediately after he won, his steadfast positions slowly began to become more flexible. Repealing Obamacare went from priority number one to only a partial repeal, the Muslim ban is looking less promising, and he has already said that he will not prosecute Hillary.  Clearly, Trump is easing his opinions now that his policies have been anchored. There would have been no reason for him to campaign with more extreme propositions and then become more moderate after his win unless he had negotiation in mind. Otherwise, we would see him do the opposite, he would’ve campaigned moderately and ended up doing whatever he wanted.

Beforehand, I mentioned “Loss Aversion,” which refers to the tendency for people to strongly prefer avoiding losses than acquiring gains. In other words, a person is more likely to settle where he thinks he can walk away from a situation with some benefit, rather than pursue the action until its end, in an effort to see if he can win much more than the arrangement offered to him. This delusion will often cause people to walk away from court cases, gambling and/or business deals even when probability dictates that it is likely that they can receive more if they would continue to pursue the endeavor to its conclusion.

This is interesting to note considering that "winning" was one of Trump's campaign themes. During a speech in Florida Trump said "We're gonna win win win and we're not stopping," and it would be hard to forget the time he stated "We will have so much winning when I get elected that you may get bored of winning."

We should consider the thought that people may have voted for him because they were loss averse. And Trump's constant victory-themed rhetoric is what compelled them to vote for him. Trump almost made it seem as though it was vote for him and win or, alternatively,  vote for Hillary and lose.

But while I don't have evidence other than the above speculation to suggest that Trump won the election because the America people were averse to disappointment, I do think that we will see many politicians display loss aversion when they go to the negotiation table and see Donald Trump on the other end.

Politicians, like all other humans, certainly suffer from loss aversion when trying to pass legislation. But in addition to the standard psychological fallacies, I expect that we will see politicians bow to Trump at the negotiation table for the following reasons as well.

Politicians must be feeling self-conscious at this point. Their world was just penetrated and completely possessed by an individual who has shown less political finesse than a looney toon. So I would imagine that when the time comes to pad their personal resumes (so that they can get re-elected when the midterms draw closer) they will be quite loss averse when it comes to pursuing policy with President Donald Trump. Of course, the fact that Trump is now the most powerful man in the free world gives him some negotiating power. But the truth is that there is only so much that he can do without Congress' consent, which would be comforting if the politicians in the House and the Senate weren't suffering from severe disappointment aversion.  This is only furthered by Trump's outsider status.

You see, if Trump comes out throwing proposals at Congress and they reject them, then it will appear as though the outsider is trying to get serious reform done while the classic, old, stale politicians continue to stall the process. The Republicans (who hope to grow their congressional majorities in the midterms) will not let that happen. As a result, they will meet Trump at the table, and make that settlement agreement, when in truth their political ideologies could have prevailed the entire time.

What I have described has already started happening. True conservatives like Mike Pence and Ted Cruz have supported Trump’s crony capitalism maneuvers in the carrier job deal. This was a breach of free market capitalism and neither Cruz or Pence would have supported it a few months ago.

But this is Trump country now. The Donald has arrived and we can expect to continue watching as politicians bend to his will.
So for a guy who many people (including myself) called a complete moron, it seems as though he has been steps ahead of us since the start.