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Precise offers and the art of haggling

Posted By Claes Bell On 10/15/2013 @ 8:30 am In Shopping | 4 Comments

Negotiating prices is an important skill to have, and not just for those times when you visit countries where haggling over small purchases is common practice.

While most day-to-day purchases aren’t negotiable in this country in the same way they are in Latin America and Asia, most of the really significant ones are. In many cases, skillful haggling can knock thousands of dollars off the price of a car and tens of thousands off the price of a house, which can have long-lasting effects on your finances. And when you’re sitting down for an interview with a potential employer and talking salary, you’re really negotiating arguably the most important price out there: the price of your labor and, ultimately, your time.

But whether you’re haggling over the price of a washer or your annual salary, here’s a trick I recently heard about that’s got some scientific evidence to back it up: Instead of pulling out a round number when making your initial offer for something — i.e., “I’ll give you $500 for that dryer and not a penny more!” — go for a more “granular” offer, i.e., “I’m looking for an annual salary of $47,251.”

You might get a weird look from the person you’re negotiating with, but it’s likely their counteroffer will be closer to your original “anchor” than if you had picked a round number, according to a recent study [3] by researchers at Columbia University.

In the study, researchers gave test subjects found on Amazon’s Mechanical Turk crowdsourcing website the job of negotiating a price. Those given a precise opening offer countered with a number that was, on average, significantly closer to the asking price than those who were given a nice round opening offer. After dust cleared on the test negotiations, the final price negotiators who had used the precise offers got was substantially closer to their asking price than those who had started with a round offer.

And lest you think it only works with amateurs, researchers tried the same trick on a sample of experienced managers and MBAs, they got similar results.

So why would something as simple as avoiding round numbers make your asking price more “sticky”? The researchers speculated that a more precise offer sends a message the person making it is more confident and informed than a round-number user.

The next time I get the chance to haggle, I’m going to try this, and I’ll let you know if I feel like it yielded a better result. What do you think? Does this seem like something that would work to you?

(Photo: Python (Monty) Pictures)


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[3] recent study: http://www1.gsb.columbia.edu/mygsb/faculty/research/pubfiles/5957/precise_offers.pdf

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