Take the Leap: Overcoming Uncertainty with the Principles of Persuasion
Published: March 12, 2008 in Knowledge@W.P. Carey

The news about the economy is bad, and keeps getting worse.

The U.S. Labor Department says employers slashed 63,000 jobs in February -- the worst losses in five years. The dollar has hit an all-time low against the Japanese Yen and is nearing an all-time low against the Euro, too. Gas prices have soared to $3.20 a gallon, the mortgage and credit crises are deepening, and even with inflation now a legitimate concern, the Fed seems poised to cut interest rates yet again in hopes of propping up an economy that many believe is entering a recession.

"I think there is a clear sense of uncertainty prevailing these days," observes Robert Cialdini, a professor of marketing and psychology at Arizona State University. "It's 50-50 right now as to whether we're going to end up in a recession or not. Some say we will, some say we won't. And for those who do think there will be one, there's uncertainty as to how long it will last -- whether it will be shallow or deep."

In other words, Cialdini says, it's an ugly, confusing situation. As a result, more and more people find themselves utterly puzzled as to how to react. Should they keep investing in stocks? Do they dare take out equity in their homes? Is it really a good time to launch their own business?

Many of those asking these questions are likely to answer, "No," simply because they will find themselves frozen by uncertainty. That's not good news for an economy struggling to regain its footing -- not to mention executives and business owners who need customers to keep spending if they are to survive.

"The thing about uncertainty is that it can cause people to freeze," Cialdini says. "It will cause them to do nothing."

The only way to get these folks moving? Persuasion, Cialdini says.

Principles of persuasion
A longtime expert in the power of persuasion and author of "Influence: Science and Practice," Cialdini has spent years working to understand how the masters of persuasion -- executives, salesmen, military recruiters, financial advisors and others -- use their skills to make sales, win clients and generally get other people to say, "Yes," even when they may be inclined to sit tight.

Through those years of study, Cialdini has discovered that persuasion works through the leveraging of six basic psychological principles, each of which, when used correctly, can generate a strong psychological response in persuasion targets and motivate them to act.

But three of these principles may be especially useful today, at a time when recession fears are rampant and the markets are in turmoil. According to Cialdini, the proper application of these three principles -- scarcity, consensus and authority -- can help smart businesspeople thaw the freeze of uncertainty that has left so many people wondering what to do next, and mostly doing nothing at all.

It's not that these people don't want to act, says Cialdini. It's that they don't know how to act. That's partially due to their fear of the slumping economy, of course, but also due to the fact that, everywhere they turn, they are bombarded with information.

The information revolution has put an over-abundance of information at our fingertips, which can be a good thing. But at a time when many are already stressed out by the sinking economy, information overload about that economy can be too much to digest.

"There's a broader kind of uncertainty that applies to commercial exchange," Cialdini says. "Modern life has been increasingly information-overloaded, and so people are subject to an avalanche of new products, new choices and new challenges in their lives. That's due to our society's ability to provide information at levels that are unprecedented. But this also leads to the sense that people really aren't sure what's going to happen next, because they fear things are going to change so quickly."

Clarity
What these people really need in a time like this, Cialdini says, is clarity. They need simple, straightforward advice.

The three principles of persuasion mentioned above can help provide just that, showing people what they stand to lose if they don't act (scarcity), pointing out what other people like them are doing (consensus) and providing them with expert advice that can give them the confidence to move forward (authority).

"What we have here is a problem, and there are three prongs to it -- the state of uncertainty surrounding the economy, the volatility of the markets, and the avalanche of change and choice and challenge that we didn't have to face in the past," Cialdini says. "But we do know that the principles of influence … may overcome this uncertainty, and that these three principles in particular should be employed under uncertain conditions."

The three principles can be defined as follows:
  • The principle of scarcity states that rare or unique objects, ideas, and information hold greater value than more common versions of these things.

  • The principle of consensus, or social proof, says humans are heavily influenced by the actions of others.

  • The principle of authority states that people want to follow the lead and advice of legitimate experts.
The ideas underpinning these principles are fairly simple, and putting them to work in the real world isn't all that complicated, either. In fact, doing so may be no more involved than refining a message, or a sales pitch, to hit on the points that really get people to act.

Scarcity
Take, for instance, the principle of scarcity. According to Cialdini, this principle works so well because humans are motivated more by fear of loss than want of gain. And that applies to everyone, he notes -- even high-powered executives. In one famous example, a 1994 study in Organizational Behavior and Human Decision Processes showed that potential year-end losses were more likely to influence the decisions of high-level managers than potential gains.

"Scarcity is affiliated with the concept of loss, because loss is the ultimate form of scarcity," Cialdini says. "When people are unsure about things, they are especially loss-averse. They are especially sensitive and resistant to the idea of losing something, much more than they are interested in gaining something."

This principle's application in the real world can be as simple as offering people a thorough accounting of all they stand to lose by not acting. Financial advisors, for example, would be wise to employ this strategy to get their clients to keep investing even in down markets, simply because doing so is more likely to produce long-term profits than sitting on money and doing nothing.

"One of the things I recommend is to honestly inform your customers and clients of what they stand to lose if they fail to move in [the direction you suggest]," Cialdini says.

Consensus and authority
While scarcity plays on humans' fear of loss to gain results, consensus and authority capitalize on our need to take cues from, and follow the advice of, others.

The power of consensus, also known as social proof, has been well documented, with study after study showing that, all things being equal, people will generally follow the crowd. Simply put, people feel safe knowing that they are doing what everyone else is doing. Few enjoy being on an island.

"We want to know, 'What are others doing?'" Cialdini says. "The answer to that gives us a piece of information about what we might want to do. A person who is uncertain is really ill advised to look inside themselves for an answer, because all they have in there is confusion anyway. People look outside themselves in those circumstances. They have a particularly valuable place to look, and that's to evidence you can provide about what their peers are doing."

That is, at least, when they're not turning to experts instead. While people do trust the crowds, they also put great stock in expertise. Give them reason to believe that you have knowledge and experience that others don't, Cialdini says, and they will follow.

That's especially true, it turns out, when times are hard.

"Again, people in times of uncertainty will look outside themselves, not inside," Cialdini explains. "If it's not their peers they're looking to, then it will be experts -- recognized experts. So when there is a recent change in things, or times are unfamiliar to people, it would be smart to marshal and communicate to them the evidence of what your expertise is."

Bottom Line:
  • Fears of recession, turbulent markets and an overload of information about the situation have created a sense of uncertainty about the economy going forward, leaving many people unsure how to react.

  • Uncertainty is especially problematic for a stagnant economy because it often times leaves people frozen -- too scared to spend and unwilling to invest because of an uncertain future.

  • Three specific principles of persuasion -- scarcity, consensus, and authority -- can be used to influence people to overcome their fears.

  • Scarcity shows people what they stand to lose by not acting, while consensus and authority offer them evidence of what expert others are advising or similar others are doing while faced with the same situation.
Reprinted with permission from Knowledge@W.P.Carey. To read more click here.
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