The Psychology of Underpricing: Negotiation, Relative Value, and Finding Hidden Gems

Sold items on eBay, Carousell, or Craig's list and later found out that you underpriced your items? Underpricing is a phenomenon that affects both buyers and sellers in various marketplaces, from yard sales to high-end auctions. While it might seem counterintuitive to sell items at a lower price than their true value, the psychology behind this practice is deeply rooted in negotiation skills and the concept of relative value. In this post, we will explore the reasons why people sell things too cheap, suggest ways to improve one's selling strategy, and discuss the psychological aspects of finding undervalued gems at yard sales.

Negotiation Skills and Relative Value

One of the key factors that influence underpricing is negotiation skills. People with lower self-confidence or limited negotiation experience may inadvertently undervalue their items to avoid confrontation or perceived conflict (Galinsky & Mussweiler, 2001). Moreover, the anchoring effect, a cognitive bias that causes people to rely too heavily on an initial piece of information (Tversky & Kahneman, 1974), may lead sellers to base their price on the initial low offer, causing them to undervalue their item.

Relative value also plays a role in underpricing. The concept of relative value refers to the perception of an item's worth based on its comparison to other similar items (Hsee, 1996). When sellers lack information about the true value of their items, they may resort to comparisons with other items in the market, leading to underpricing if those items are also undervalued.

Improving Sales Strategy and Achieving Higher Value

To counteract the tendency to underprice, sellers can take several steps to improve their negotiation skills and understanding of relative value:

Research: Conduct thorough research on the true value of the item being sold, taking into account factors like rarity, condition, and market demand.

Confidence: Develop self-confidence and assertiveness in negotiation situations. This can be achieved through practice, role-playing, or even taking courses on negotiation techniques (Thompson, 1990).

Anchor Higher: To avoid the anchoring effect, start with a higher initial asking price, which will serve as a better reference point for subsequent negotiations (Tversky & Kahneman, 1974).

Highlight Unique Features: Emphasize the unique features or qualities of the item that set it apart from others in the market, thus increasing its perceived value (Hsee, 1996).

The Psychological Thrill of Yard Sales and Undervalued Gems

During my time attending school in the USA, I particularly enjoyed engaging in "treasure hunts" at yard sales as my favorite summertime activity. Yard sales are a treasure trove for finding undervalued items, but why do people find it so exciting to discover hidden gems? The answer lies in the psychological concepts of scarcity and cognitive dissonance.

Scarcity is the perception that something is limited in availability, which can increase its perceived value (Cialdini, 2009). Yard sales often involve one-of-a-kind items, which create a sense of urgency and excitement for the buyer. Cognitive dissonance, on the other hand, is the discomfort experienced when a person holds two contradictory beliefs (Festinger, 1957). In the context of yard sales, buyers may experience dissonance when they find an undervalued item, and resolving this dissonance by attributing the lower price to the seller's lack of knowledge can lead to increased satisfaction and enjoyment.

The psychology behind underpricing is multifaceted, with negotiation skills and relative value playing significant roles. By understanding these concepts and implementing strategies to improve sales techniques, sellers can increase the value of their items and avoid underpricing. For buyers, the thrill of finding undervalued gems at yard sales can be attributed to the psychological concepts of scarcity and cognitive dissonance, which contribute to the excitement and satisfactionof the hunt.

Expanding Your Knowledge and Skills

For both sellers and buyers, continuous learning and improvement can help optimize the overall experience in the world of sales and negotiations. Here are some additional suggestions for enhancing your understanding and expertise:

Learn from Experts: Seek out experts in your area of interest, whether it's antiques, collectibles, or other niche markets. These individuals can offer valuable insights and advice on identifying undervalued items and proper pricing techniques.

Networking: Connect with other sellers and buyers to exchange information, experiences, and tips. Joining online forums, attending trade shows, or participating in local collectors' clubs can expand your network and knowledge base.

Stay Informed: Keep up with industry news and trends, as well as any changes in market demand or consumer preferences. This will help you make informed decisions when setting prices or searching for undervalued items.

Develop a Discerning Eye: Train yourself to identify subtle differences in quality, condition, and authenticity. This skill is invaluable when assessing the true value of items and will give you a competitive edge in the market.

Key Takeaways

Understanding the psychology behind underpricing can be beneficial for both sellers and buyers in various marketplaces. By exploring the concepts of negotiation skills, relative value, scarcity, and cognitive dissonance, individuals can make more informed decisions and optimize their overall experience in the world of sales and negotiations. Continuous learning and improvement are essential for success, and implementing the suggested strategies can help sellers achieve higher value for their items and buyers find undervalued gems.

References

Cialdini, R. B. (2009). Influence: Science and practice (5th ed.). Pearson Education.

Festinger, L. (1957). A theory of cognitive dissonance. Stanford University Press.

Galinsky, A. D., & Mussweiler, T. (2001). First offers as anchors: The role of perspective-taking and negotiator focus. Journal of Personality and Social Psychology, 81(4), 657-669.

Hsee, C. K. (1996). The evaluability hypothesis: An explanation for preference reversals between joint and separate evaluations of alternatives. Organizational Behavior and Human Decision Processes, 67(3), 247-257.

Thompson, L. (1990). Negotiation behavior and outcomes: Empirical evidence and theoretical issues. Psychological Bulletin, 108(3), 515-532.

Tversky, A., & Kahneman, D. (1974). Judgment under uncertainty: Heuristics and biases. Science, 185(4157), 1124-1131.