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Precise Negotiations

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Using precise numbers may give you an advantage in negotiations.


Transcript

Precise negotiation. I’m Bob Hirshon and this is Science Update.

When bargaining over a house, a car, or even a salary, being especially precise could give you a leg up. This according to researchers at Columbia Business School. Psychologist Malia Mason’s team found that in model negotiations, people who made a precise opening offer, like five thousand fifteen dollars, fared better than those who led with a round number, like five thousand. Comments from their trading partners explained why.

Mason:
People who use precise offers in negotiations give the impression that they’re informed, that they’re knowledgeable, that they have a strong understanding of the market value of something.

That resulted in bigger concessions from the other party. Mason cautions that this is just one aspect of negotiation. But she says most people seem to default to round numbers, and changing that habit might pay off. I’m Bob Hirshon for AAAS, the Science society.


Making Sense of the Research

Many financial transactions aren't as simple as walking into a store and paying whatever price scans at the register. Especially when the item involved is expensive, like a house or a car, the purchase may start with an asking price and a counteroffer, then agreeing on a number in between. But whether the final price is closer to the seller or the buyer's opening bid depends largely on the negotiating skill of each party. 

Of course, a good negotiator usually employs many different skills, including a knowledge of the market, a knack for persuasive arguments, and an ability to size up her negotiating partner and adapt her strategy accordingly. This experiment focused on just one straightforward variable: the precision of the original offer.

The experiment was conducted with business school students, who routinely practice negotiations as part of their education. In this case, however, some students were instructed to make their opening bid very precise—in other words, to avoid numbers that end in zeroes. So, for example, instead of asking $35,000 for an (imaginary) car, the seller might instead ask for $35,293. Or, the buyer might respond to a round asking price of $35,000 with a counter-offer of $31,977. 

This may seem strange and even socially awkward, and many of the students said so. However, the students that made precise offers turned out to be more successful in their negotiations, getting a final price closer to their first offer than those who relied on round numbers. When asked afterward what they thought of partners who made precise offers, students said they seemed especially well informed, which may have led them to be more cautious and conservative in responding to their precise bid.

Although these negotiations were simulated, it's reasonable to expect that the effect would be similar if real money were involved. However, that would be difficult to verify, since people may be reluctant to follow the instructions of a research study if their own money were on the line. Still, Mason notes that round numbers seem to be a common default, not only among her own students but on the real estate site Zillow.com, where prices for homes are overwhelmingly set in round numbers. Given that, she says it may be worth trying to go against the grain and use precise figures, especially if you can back them up with real knowledge.

Now try and answer these questions:

  1. What was the main finding of this study?
  2. How did the researchers measure the effect of precise offers in negotiations?
  3. What are some ways in which the model negotiations were similar to real life? In what ways were they different?
  4. If you were in a negotiation, do you agree that a precise offer from the other person would make you think he or she was well-informed? Why or why not?

You may want to check out the June 28, 2013, Science Update Podcast to hear further information about this Science Update and the other programs for that week. This podcast's topics include: When apes take a gamble, the value of precision in negotiations, a new approach to targeting drug addiction in the brain, and what above-ground nuclear tests in the mid-20th century can tell scientists about the brain.

In the Science Update Touchdown Decisions, researchers find that football coaches may benefit from going against their instincts as well.

The Science Update Consensus Models explores how people in a shared environment come to unspoken general agreements.

In Opinion Repetition, find out why one person repeating the same argument can have a similar effect to truly widespread agreement.


Going Further


For Educators

In the Science Update Touchdown Decisions, researchers find that football coaches may benefit from going against their instincts as well.

The Science Update lesson Consensus Models explores how people in a shared environment come to unspoken general agreements.

In Opinion Repetition, find out why one person repeating the same argument can have a similar effect to truly widespread agreement.


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