Learning to lower risk and better negotiate, by studying the riskiest of businesses with Allison Schrager, author of “An Economist Walks into a Brothel"

Allison Schrager Instagram

A story pitch led economist Allison Schrager to conquer her own negotiating fears by learning from the economically savvy workers at a Nevada brothel. The experience led her to investigate the most compelling and successful approaches to negotiation, reducing risk and increasing the chances of success. 


In Allison's money story you will learn:

  • Why she went to a brothel to learn negotiation skills

  • How she was able to get comfortable with hearing no

  • Why, when getting a yes, you may not be asking for enough


My new life philosophy is you should hear no at least 60% of the time and if not you haven’t asked for enough”

In Allison’s money lesson you will learn:

  • Why it's okay to hear no and how to recover from it


"Nothing freaks me out and fills me with more anxiety,.. than asking for money."

In Allison's everyday money tip you will learn:

  • Why it's important to diversify in finance

“If you ask for the sun, maybe you will get the moon”

In My Take you will learn:

  • Think about the things you can do to increase your odds of success in a negotiation

  • Try to identify things you do that increase your risk

Episode Links:

Allisons book An Economist Walks into a Brothel

Check out Allison's website -

www.AllisonSchrager.com

Follow Allison!




Transcription

Allison S.:
So you're telling me, you've got women in their early 20s negotiating with men in their 60s over tens of thousands of dollars? And they're like, "Why, yes. And it's interesting, no one's ever asked us about that before."

Bobbi Rebell:
You're listening to Financial Grownup with me, Certified Financial Planner, Bobbi Rebell, author of How to Be a Financial Grownup. And you know what? Being a grownup is really hard, especially when it comes to money. But it's okay. We're going to get there together. I'm going to bring you one money story from a financial grownup, one lesson. And then, my take on how you can make it your own. We got this.

Bobbi Rebell:
Hello, Financial Grownup friends. I personally hate negotiating and I'm terrible at it. So, I was thrilled when a mutual friend ... Hey, Caroline ... introduced me to Economist Journalist and Author, Allison Schrage. She was also not the best at negotiating until she went on a little adventure learning about a business she knew nothing about. I don't know a lot about and I bet a lot of you don't know a lot about. We'll get to that soon.

Bobbi Rebell:
First a quick welcome to everyone and to our new listeners. Thanks for checking us out. If you like what you hear, please take a moment to subscribe so you don't miss any upcoming episodes. And, make sure to click Custom Settings and set to Auto Download. One less thing to think about. We have an amazing lineup this spring so I'm really excited to share those episodes with everyone. But now, let's get to Allison. The title of her book is meant to grab your attention. And I'll be honest. I did a little eye roll when I first saw it but once I read it, I gained a lot of respect for her methodology and her curiosity. And, honestly? A lot of this stuff and the different topics she covers are fascinating. You will learn a lot in this interview and you'll learn a lot from her book. The book, by the way is called An Economist Walks into a Brothel: And Other Unexpected Places To Understand Risk. And there are some very unexpected places in this book. We'll get to more of that soon.

Bobbi Rebell:
Here's the thing though. That's what actually happened. She actually walked into a brothel and learned about risk. You're going to love this interview. Here is Allison Schrage.

Bobbi Rebell:
Hey, Allison Schrage. You're a Financial Grownup. Welcome to the podcast.

Allison S.:
Hi. Thanks for having me.

Bobbi Rebell:
Congratulations on your new book, An Economist Walks into a Brothel: And Other Unexpected Places To Understand Risk. Everyone should know you are the real deal, Allison. You're also an economist, you're a journalist at Quartz. One of my favorite publications. You're also Co-Founder of LifeCycle Finance Partners which is a risk advisory firm. Very appropriate because we're going to be talking a lot about risk on this episode. Nice to have you.

Allison S.:
Thanks so much for having me.

Bobbi Rebell:
Before we get into your money story, just tell us a little bit about your book because it does focus on risk.

Allison S.:
Yeah. My background is I'm a Retirement Economist. I study how to fund for retirement which is one big risk problem. Which ... Something we all saw that's how to move money from today into the future as risklessly as possible to have enough to live on. All I ever did all through grad school and after grad school is study risk. But, it dawned on me when I got better risk training or financial training that really, these lessons about finance ... that we get from financial markets really apply to any risk problem. Financial economics is just the study of risk in financial markets but the principles apply anywhere.

Allison S.:
I spent about a year traveling around the country looking into really quirky industries that you would never expect because the idea is just like a financial market. Prices driven by risk and the different ways we can reduce risks so we can get more for less.

Bobbi Rebell:
The industries are interesting, in addition to the one mentioned in the title. You get into everything from surfing to the movie business and even paparazzi. We're going to circle back to that very soon. But first, I want to get to your money story and that has to do with a very unique negotiation training that you were able to participate in. Tell us your money story, Allison.

Allison S.:
Well, this is actually what brought me to the brothel initially. When I had a relationship with them is they called me wanting me to write about them and I was like, "I don't know about this." They were ... I'm like, "But, tell me about the industry" and they're like, "Well, you know. All the women are independent contractors and we have no set prices. They negotiate every transaction." I was like-

Bobbi Rebell:
These are the legal ones in Nevada?

Allison S.:
Yes.

Bobbi Rebell:
To be clear.

Allison S.:
Yes. This is the legal brothels in Nevada. They're all 1099 employees. I was like, "Well, that's interesting. So, you're telling me, you've got women in their early 20s negotiating with men in their 60s over tens of thousands of dollars?" And they're like, "Why, yes. And it's interesting, no one's ever asked us about that before. You know, then a lot of them come here, not knowing their value so we train them so they know how to be better negotiators and ask for more."

Allison S.:
Now, this is something I struggle with. I'm terrible at negotiating. Nothing freaks me out more and fills me with more anxiety, or at least used to, than asking for money. I am just-

Bobbi Rebell:
Oh, I think all of us.

Allison S.:
All of us. I've always probably been underpaid for this reason. Off I went to Nevada and I spent about a week and a half there learning negotiation skills and it changed my life. Particularly, Dennis Hof when he was alive, was there. He told me something about negotiation that just really changed my outlook for money and for everything, which is you have to get comfortable with "No" because you have to hear "No" more than you hear "Yes" because that's how you know you're asking for enough.

Bobbi Rebell:
I think that's really smart. What's interesting that these women that are in the legal part of the industry do get triple, I think what the ones that are outside of the legal. There's a reason for that is because they're paying to lower their risk, which I think is fascinating.

Allison S.:
Yeah. Just like any market, you pay for safety. Brothel customers pay this 300% markup for transaction that affectively their "No's" going to have no consequence. They're not going to get arrested. No one's going to blackmail them. She's not going to be on the news. They know if she's been screened for diseases. If a customer want ... men and women want that kind of service, then there's somewhere they can go and know they can get at risk-free but they have to pay for it.

Bobbi Rebell:
Did you take those lessons and actually use them in your own life?

Allison S.:
Oh, yeah. Especially one. I learned how to asked for more and feel comfortable hearing "No." My new life philosophy is you should hear "No's" at least 60% of the time and if not, you haven't asked for enough. Also, I also learned these techniques of how to feel more comfortable hearing "No" because it's like a risk, like anything. And that, if you go into a negotiation, it's a risk. It could blow up and you'll destroy your relationship. This is a big concern. The two people negotiating in a brothel, they're about to do something very intimate but they have to argue about money before. It's sort of like your job negotiation on steroids, in terms of tension.

Allison S.:
What they do is they do something you do in finance too, which is there's a lot of hedging. There's a lot of maintaining some sort of form of liquidity, which is you don't just say ... Salary negotiation like, "Double my salary or I'm going to quit." You're just like, "Well, hey. I would like this much more money but if that's not realistic, I could take more vacation days." What you do is you offer this menu of options, which promotes flexibility for both sides and that increases the odds you're going to have a more successful transaction.

Bobbi Rebell:
How did you ... When you then ... Are there specific ways that you then implemented these negotiations strategies in your life since then?

Allison S.:
Oh, yeah. I'm now very comfortable hearing "No." Certainly in terms of writing the book and asking for the resources I needed from both the publisher and from friends helping me promote it. I'm now very comfortable with making these ballsy asks I would've never done before.

Bobbi Rebell:
Can you give an example of one that you asked for that was success? And maybe one that wasn't successful.

Allison S.:
I think it's certainly in terms of asking corporations to do bulk sales. That was just something I would've never asked for before. Now I feel comfortable with it. But, sometimes more often than not, I am being told "No." It still stings a little but then I sort of tell myself, "You asked for enough because you heard no."

Bobbi Rebell:
That's a good thing to remember because ultimately, in other words, you want to hear "Yes" but if you hear a "Yes" right away, that in a way makes you feel, "Well, maybe I didn't ask for enough." I think that's something people need to keep in mind. On that theme, what are the lessons for our listeners from your money story?

Allison S.:
I basically said it. It's okay to hear "No." The world doesn't end. It doesn't destroy your relationship. If you don't hear "No," you're not getting enough.

Bobbi Rebell:
How do you recover from the "No?"

Allison S.:
Well, now as I said, it still stings. I sit there-

Bobbi Rebell:
But, can you just go back with your tail between your legs and be like, "Okay. I know you said no to that. Can you do this?" Or do you have to just walk? You just have to save face and be like, "Then I'm not going to do it."

Allison S.:
You come back with another alternative because most transactions aren't binary. It's not like you'll do this or it's not happened. There's maybe a third way. I become more of this school if you ask for the sun, maybe you'll get the moon.

Bobbi Rebell:
Right. Maybe when you originally approach a negotiation, you make sure to not make it binary and not create absolutes. So, that starts at the beginning is giving yourself a way to circle back if you don't get the answer that you want.

Allison S.:
Exactly. What they do in the brothel is customer's a little nervous and they'll lay out like, "Hey. What do you think that they'll do?" He'll be like, "I don't know. I've never been here" and they'll be like, "All right. Here's what I think I should do." They'll lay out this elaborate sexual plan. It involves going to the movies, and dinner, and it's 12 hours. The guy will be like, "That's amazing" and then they'll be like, "Great. That'll be $15000." Then he's like, "Whoa, no" and then they're like, "All right. Well, maybe we can take dinner off the table."

Allison S.:
What you do is you have this big hairy ask but then there's components to it and you take it apart so no one's really ever heard "No." But, you have this whole ... It's actually a menu of choices.

Bobbi Rebell:
Interesting. Any specifics that you think people could use when they are applying it to their own life?

Allison S.:
Yeah. I mean, if you're ... Like I said, if you're negotiating for your salary, as I said, it doesn't have to be all monetary compensation. You could talk about flexible hours. You can talk about more vacation days. Or, as I said, even if you're asking a friend for a favor like they're going to promote your book. You can ask them to email everyone in their company and they'll probably say "No" because that's a little ballsy but maybe they'll share it on Facebook and it's something.

Bobbi Rebell:
All right. Let's go to your everyday money tip. That basically has to do with getting the most out of life by taking as little risk as possible but that comes down to, you say diversification but not just stocks.

Allison S.:
Risk is the cost of getting what you want. You don't want to take anymore than necessary. Diversification has been proven in finance as it gets rid of unnecessary risks but not all risk. That doesn't just apply to financial markets. It could apply to anything. It could be if you're in a job doing gig or contract work on the side if possible. So, you have that option. It could be keeping your network fresh, so you have other options if that job doesn't work out or you want a new skill. Or, it could even be with dating. I actually re-read the rules when I was doing the book because I keep [inaudible 00:10:47]. I was like-

Bobbi Rebell:
Well, the book you're referring to is a book from years ago when two women wrote about these very harsh ... They sort of sound old fashion rules but they're almost playing hard to get, I guess. But, go on.

Allison S.:
Yeah. It's a much better book than you remember. But, one of their tips is don't be exclusive with someone until that you really know they're serious about you. I mean, they actually marry you but-

Bobbi Rebell:
Diversification then, in dating? Affectively. Yeah.

Allison S.:
It is and it really does bring out your best self. It really is efficient in some ways because it keeps you from getting invested in the wrong person. They could be a jerk and you don't know that yet because you don't really know who they are. It also makes you feel more desirable and attractive so really can be your best selves. Diversification really applies to anything.

Bobbi Rebell:
Love that. Let's talk about the book. Because as I said, the subtitle ... I actually did not read at the top, is called And Other Unexpected Places To Understand Risk. You really go to a lot of different places. You talk about surfing. You talk about paparazzi. I really enjoyed the discussion about the movie business.

Allison S.:
You have this recurring story that seems to happen every couple years in Hollywood, which is someone from finance comes in and they're like, "I can tame this beast. I know how to make these weird risk distributions work in financial markets so I'm going to do it in the movie market." It always ends in tears for everyone.

Bobbi Rebell:
You also use the paparazzi business where a lot of these people stalk celebrities to get those photos that are spontaneous and maybe off and tell a story. You use that to illustrate idiosyncratic risk versus systematic risk, which I find fascinating.

Allison S.:
The paparazzi face a lot of idiosyncratic risk with their income. At any given day, they might get that shot of a celebrity canuding with a new lover and that might be $100000. Or, they might just get a picture of celebrity getting coffee and that'll be five. It's totally random.

Bobbi Rebell:
I just want to wrap up with your advice for people that want to lower their risk. You talk about de-risking, risk-free ways to be, and even ways to apply it to everything from cruising to even the way the military lowers risks.

Allison S.:
Yeah. There's two main ways you can reduce risk after you diversify. Diversifying is getting rid of unnecessary risk but there's still the risk remaining. One way is to hedge, which is just take less risk or in finances would be balancing your stock portfolio with a bond portfolio, that's the appropriate risk-free portfolio. That's just taking some risk off the table. You give up some upside, you get rid of some downside.

Allison S.:
The other way is insurance, which is you pay someone to take the risk on your behalf but you still keep all the upside but it comes at a cost and sometimes it's super expensive. For instance, I went to a Big Wave Surfing Risk Conference and one of the techniques they discussed is a hedge technique, which ... big waves travel in sets of like five waves, four or five, supposed. We have this image that surfers are just looking for the ultimate big wave but really, they're much more thoughtful about it. The ultimate big wave might be that first wave in the set but you wouldn't take that wave because if you wipe out, there's going to be four big waves barrelling on you and you'll probably drown.

Allison S.:
What they do is they ... Any waves' a great wave. They'll reduce some of that upside of getting that great wave and wait for a later wave in the set. Anyway, it might be smaller just because it's less risky.

Bobbi Rebell:
Fascinating. I never would've thought of it that way. There is a strategy to surfing. Tell us more about where we can find out more about you and where we can pick up the book.

Allison S.:
Yeah. The book's on sale on Amazon, and Barnes & Noble, and Barnes & Noble in person, and my website, allisonschrage.com. My direct, all that stuff. There's more information about me.

Bobbi Rebell:
And your socials?

Allison S.:
Yeah. I'm not very creative. It's also AllisonSchrage for my Twitter and Instagram. Also, you can find my columns at Quartz.

Bobbi Rebell:
Love it. Thank you so much, Allison.

Allison S.:
Thank you.

Bobbi Rebell:
Here we go my friends. Financial Grownup tip number one. Think about the things you can do to increase your odds of success in a negotiation. Allison talks about creating a menu of options asking for the most first but offering the other party at least something that they can give you to make it a win at some level. Think about a wine list at a restaurant. A lot of people pick the second cheapest one for a reason. The restaurant knows this and in many cases, they can actually build in the biggest profit margin because they know that's where everyone's going to gravitate towards.

Bobbi Rebell:
Financial Grownup tip number two. Try to identify things you do that increase your risk. In the book, for example, Allison talks about how poker champions with stacks of money on the line have to factor in their irrational behavior as the stakes get higher. What do you do that is economically irrational? Shopping for food on an empty stomach. Yeah, that's me. Buying things because they're on sale. Me too. You get the idea. And let me know. DM me with your biggest irrational economic decisions. I would to hear and share with the community so we can all be a little bit more aware, and maybe we can come up with some ways to help.

Bobbi Rebell:
On Instagram, I am at BobbiRebell1. On Twitter, at BobbiRebell. You can always email us at hello@financialgrownup.com. Quick reminder, come join me and my co-host, Joe Saul-Sehy at our other podcast, Money in the Morning. We take the buzziest headlines and we share them with you. We discuss and most of all, we come up with takeaways on how we can learn from them to live richer lives. Big thanks to Allison Schrage for helping us all get one step closer to being Financial Grownups.

Bobbi Rebell:
Financial Grownup with Bobbi Rebell is edited and produced by Steve Stewart and is a BRK Media production.