Research Briefings - August 2013
Research conducted by two professors at Columbia Business School finds that asking for a specific and precise dollar amount versus a rounded-off dollar amount can give you the upper hand during any negotiation over a quantity.
The research, published in the Journal of Experimental Social Psychology, looked at the two-way flow of communication between 1,254 negotiators. The negotiators were placed in everyday scenarios such as buying jewelry or negotiating the sale of a used car. Some people were asked to make an opening offer using a rounded-off dollar amount, such as $5,000, while other people were asked to use a precise dollar amount, such as $5,015.
The results showed that overall, people making an offer using a precise dollar amount were perceived by the recipient as having done their homework about the true value of the transaction. This perception suggested that there was less room to negotiate, and enabled them to get a better deal than the negotiators who started with a round number.
To determine whether people make round offers more often than not, the researchers looked at the real estate market. Research done on Zillow, the on-line real estate marketplace, showed the overwhelming majority of displayed prices were rounded numbers, and that only two percent of people listed their homes with precise dollar amounts.
The practical application of these findings — signaling that you are informed by using a precise number — can be used in any negotiation situation to imply that you've done your homework.
Resources
Journal of Experimental Social Psychology, July 2013, Vol. 49, Iss. 4, "Precise Offers Are Potent Anchors: Conciliatory Counteroffers and Attributions of Knowledge in Negotiations," by Malia F. Mason, et al. © 2013Elsevier B.V. All rights reserved.
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