Correct for Corruption from Candor

Let’s say a vendor is trying to convince you to double the size of your order. They’ll be telling you why it’s in your best interest to have more of the merchandise on hand. You might trust them about that. But with you being a retailer, you’ll also be aware of the seller’s motivation that is shared by you and your vendor: In this transaction, the more money you spend with the vendor, the more money they make. Since you’re a smart retailer, you’ll aim to correct for that bias as you decide whether to double up on your order.
     However, sometimes a vendor’s bias is not so obvious. This time, the vendor says to you, “I recommend you try out a different brand. The cost to you will be the same as for what you’ve been carrying in the past, but my figures indicate you’ll sell more units more quickly.”
     What the vendor isn’t telling you is that they’ll earn a substantially higher commission from selling you the new line rather than the old line. The vendor has a conflict of interest.
     This might be okay. If you’ll sell more units more quickly, both you and your vendor profit. So you ask the vendor two questions: “Is your sales commission higher for this new product line?” and “How many units do you estimate I’ll sell in the first three months after I change over?”
     And then, according to findings from research at Yale University and Carnegie Mellon University, something might happen that is not okay: If the vendor says, “I’ll be honest with you. I’m recommending the changeover because my commission will be higher,” the vendor’s estimate of unit sales is likely to be much more inflated than if they don’t admit to their conflict of interest.
     In a transaction between a buyer and a seller, when the seller feels they’re being honest with the buyer about one aspect of the transaction, they’ll tend to give themselves permission to be dishonest with the buyer about other aspects of the transaction.
     Take care to make a correction in your thinking for the corruption that comes from a seller’s candor. The Yale/Carnegie Mellon researchers found that not only did the disclosure of conflict of interest lead to exaggerated estimates, but also that the buyers failed to sufficiently discount the exaggeration.

Click below for more:
Check Your Optimism When Dealing with Vendors
Consult Mirror Neurons with Vendors