Two years ago, a man walked into the Gold & Silver Pawn Shop in Las Vegas with a pair of diamond earrings.

Pawn dealer Rick Harrison asked him the typical questions — Where did you get it? Where is the receipt? — and the man readily answered. Harrison filled out the required paperwork and paid the man $40,000 for his merchandise.

The very next day, Harrison found out the earrings were stolen. The victim got her earrings back and the criminal was prosecuted. Harrison, meanwhile, was out $40,000.

"It's the cost of doing business," Harrison says. "That's the way I look at it. ... And Las Vegas is a crazy town at times. There's a lot of high-end things I get. So you have to know about ... really large diamonds, really expensive watches. ... So it's a lot different than most places."

Harrison, a second-generation pawn shop owner, is one of the stars of The History Channel's reality series Pawn Stars. The show follows Harrison, his father, Richard, his son Big Hoss and his son's friend Chumlee as they meet and haggle with customers who bring in all sorts of objects to sell and pawn. Harrison and his relatives assess the value of the objects — and try to determine whether or not they're fake — before offering their customers a collateral loan or money for their merchandise.

Harrison's new memoir, License to Pawn, details how he became an expert in, among other things, spotting fake Rolexes (he sees at least one a day), customer relations, human behavior, antiques and economics — all through running his 24-hour-a-day pawn business over the past 30 years.

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How Pawn Shops Work

Pawn shops, Harrison says, have been around for thousands of years and are among the oldest forms of banking. The way it works is simple: Customers provide a personal item as collateral to receive a loan from a pawn broker, who can then sell the product if the customer doesn't pay back the loan plus interest in a set amount of time.

"Say you have a wedding band," Harrison says. "You bring the wedding band in[to] my store. I offer you $100 and you accept it. I give you the $100, plus a pawn ticket. You have 120 days to come back in my pawn shop and pick up your merchandise and pay me my money back."

"If you come back in 30 days, you give me $115. I hand you the ring back and everything's good in the world. Now, if you don't pay me back," he says, "I end up keeping the merchandise and I put it in my showcase for sale. Nothing goes on your credit report. No one chases you down to break any legs or anything like that. You just simply have lost your merchandise. It's that simple."

The average loan for a piece of personal property, Harrison says, is around $50. And most pawn shops also charge a service fee and then tack on interest — which can vary between 10 percent and 20 percent a month.

"So if you get a $50 loan, it's going to cost you $7.50 for the first month and $5 after that," he says. "It's a lot less money than if you go to one of these payday loan places, or if you bounce a check, for that matter."

But Harrison must be careful — balancing his loans with how much the merchandise is actually worth, and how much he can receive if the merchandise is then resold. He has become an expert at assessing the value of Gibson guitars, Rolex watches, diamonds — as well as regular household items like drills, cameras and home electronics. And making sure goods aren't stolen is always an issue.

"Most people don't realize how regulated the pawn industry is, especially where I'm at in Nevada," he says. "When I take something in pawn or I buy something, I just don't take [an] ID. I take their driver's license number, their height, their weight, their eye color, their build. I turn that into the local police department, and then I also turn it into Homeland Security. It's part of the Patriot Act, and that goes to a central database online across the United States that checks for stolen items."

Doing Business

The best nights for business, Harrison says, are fight nights, when hundreds of thousands of fans flood Las Vegas to bet on boxing.

"Someone has to lose," he says. "I don't know what it is about fight fans. They always bet more than they can afford to lose."

Sometimes after fights, he says, fans line up down the block around his store waiting to trade in their jewelry for cash.

And who buys the jewelry from Harrison? Pimps — and there's a good reason why. "When you get arrested for pandering, they take your cash — because the cash was obtained illegally — but they don't take away your jewelry," Harrison explains. "And a pimp knows that if he buys jewelry in a pawn shop, if [he] brings it back to a pawn shop and gets a loan against it, [they'll] always get half of what you paid for it — as opposed to buying it in a jewelry store, when [they] don't know what [they're] going to get. So, when they get arrested, they will always have someone bring their jewelry down to me. I will loan them half of what they paid for it — and that's their bail money."

But pimps aren't Harrison's only customers — he has a series of regulars, including gamblers, billionaires and men trying to impress their dates. But the people on his TV show, he says, are generally those trying to sell — not pawn — their goods.

"The people pawning goods never want to be on the show," he says. "And the reason behind that is because when people are pawning something, they're getting a loan and have to admit they're broke. ... When people are selling something, it's a financial transaction and it's just perceived differently."

And his advice for would-be negotiators? Stay friendly, never stay in love with anything, and never set the first price.

"You're negotiating against yourself," he says. "You don't want to offer someone $1,000 for something, if you ask them what they'd pay for it, and they might have said $500. ... And if it's in your head that you're going to buy this no matter what, you've already lost. There's no real negotiating going on. You've completely capitulated if you're going to get it no matter what."

Interview Highlights

On negotiating up

"I actually had a lady come into my pawn shop with a Faberge brooch. And she wanted $2,000 for it. And I just explained to her, 'You know what? I can't do it to you.' I ended up giving her $15,000. I just couldn't do it. I really do believe in six degrees of separation. If I did give her $2,000 for that, she would have eventually found out that I ripped her off, and she would have told everybody for the rest of her life, 'Don't go to that store. They will rip you off.' ... And I'm sure [good karma] works, because that woman will be worth her weight in advertising because she will tell everybody for the rest of her life what I did for her."

On the market for pawn shops

"I think it's 20 percent of the adult population in the United States that does not have a bank account. And most of them can't get one. They don't have credit cards. They don't have anything like that for when some small emergency pops up. A lot of people don't realize that up until the 1950s, pawn shops were the No. 1 form of customer credit in the United States."

On determining whether a Rolex is real or fake

"There's a list of things that are right on a Rolex watch that's not right on a fake. The case has to be right. The dial of the watch has to be right. The crystal, the stem, the movement. If everything checks out, everything's fine. ... Fifteen years ago, someone spent probably three- or four-thousand dollars to make a fake Rolex. And I got burned on that one, so it won't happen again. Someone bought a 1970s Rolex — a really beat-up one, for $700 or $800. They take the movement out. They got a new Rolex face for it. New Rolex hands. New crystal. Made an 18-karat gold case and band for it. And they were in the watch probably $3- to $4,000. I ended up buying it for $5,000. It's an entire industry, making fake things."

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