Imagine you are eating at a restaurant with a coworker. You both engage in some small talk and then the check comes. As would be expected, you both dive for it. Your coworker was a bit faster. You offer to pay, but the coworker just says you can get it next time.
You just landed a free lunch but something doesn’t feel right. You don’t like being indebted to someone even if it’s insignificant. The next day at work, your coworker asks for some help with a project. You jump at the opportunity to balance the scale.
If you can relate to this, you would be victim to the rule of reciprocity that Robert Cialdini popularized in his book Influence: They Psychology of Persuasion. If the significance of this isn’t apparent, here’s Sheldon Cooper to explain (excuse the laugh track).
History of Reciprocity
Around 1800 BCE, Hammurabi developed a set of laws based around this idea of reciprocity. Law #196 stated:
If a man destroy the eye of another man, they shall destroy his eye. If one break a man’s bone, they shall break his bone. If one destroy the eye of a freeman or break the bone of a freeman he shall pay one gold mina. If one destroy the eye of a man’s slave or break a bone of a man’s slave he shall pay one-half his price.
Ignoring the slave stuff, this “eye for an eye” legal system played a prominent role in early civilizations. Cultural anthropologists have found evidence of a “web of indebtedness” at the foundation of these civilizations. They argue that reciprocity could even be viewed as an adaptive mechanism for survival. If our ancestors didn’t learn to share goods and services, they may not have survived. For example, one member of the group could hunt while another cared for the young. This argument aligns well with David Graeber’s theory that debt was the original medium of exchange.
The Rule of Reciprocity
The rule of reciprocity states that human beings are wired to treat others as they’ve treated them. We want to return favors and we hate to feel indebted. In fact, we dislike people who don’t allow us to return a favor. Likewise, we return a slight with another slight, even if it’s self-destructive. In the book Seeking Wisdom, Peter Bevelin explains it this way:
We respond the same way as we are treated. If we are unfair to others, people are unfair back. If people trust us, we tend to trust them. If people criticize us, we criticize them back. If people we don’t like do us a favor or an uninvited favor, we reciprocate anyway.
For example, praising an employee has been shown to have better results than berating them. A scorned lover might engage in a costly and damaging divorce for both parties. A company might offer a free trial of a product in the hope that you will feel indebted to them.
In negotiations, a concession can be viewed in the same way as a favor. We feel obligated to concede to someone who has conceded to us. Car salesman employ this trick by lowering their price. Since the salesman was nice enough to give you a deal, you might feel obligated to give them the sale. Cialdini explains:
The truly gifted negotiator, then, is one whose initial position is exaggerated enough to allow for a series of concessions that will yield a desirable final offer from the opponent, yet is not so outlandish as to be seen as illegitimate from the start.
In the same way, a fundraiser for a charity might ask you for a 20 dollar donation. When you refuse, they might ask for a 1 dollar donation. You may feel obligated to acquiesce to the smaller request.
As it relates to investing
We should always be vigilant of someone trying to sell us on an investment. A good salesman is like a magician, we may not want to admit it, but they can always exploit our biases. As Cialdini states:
It is essential to recognize that the requester who invokes the reciprocation rule (or any other weapon of influence) to gain our compliance is not the real opponent. The real opponent is the rule itself.
By being aware of the rule, we can mitigate it.
Reciprocity has the power to influence our behavior. Charlie Munger sums it up:
In reciprocation tendency, we tend to want to return the favor when someone helps us, which can be a good thing at times, but it can also lead to poor decisions if you reciprocate business deals based on these minor favors.
We return actions in kind, whether they be positive or negative. This can exploited for either benevolent or malicious goals. It is important to be aware of this.