Let’s be honest, you’re not very good at haggling, are you? Can you even picture yourself involved in a good haggle? Likely as not the scene involves an open-air market, a live pig and a language you don’t speak. You offer 10 blunks — or whatever the local currency is — the seller demands 100, and you settle out somewhere around 55. Congratulations, the pig is yours!
Odds are, however, things wouldn’t work out that neatly. That’s because you may not know the first thing about haggling. That first thing, according to a study to be published in the upcoming edition of the Journal of Experimental Psychology is: whatever you do, avoid round numbers.
The hardest part of any good haggle is knowing where to start. You’re selling your ’98 Taurus (good luck with that) so you advertise it at $3,000. You’re negotiating over a salary, and you ask for $60,000. Maybe you’ll go up in increments of fives — $3,500 for the car or $65,000 for the job. But going into an interview and asking for, say, $68,250? You’d just seem odd. As it happens, though, there’s power in precision.
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Psychologist Malia Mason, a professor at Columbia University’s business school, had been intrigued for a while with the stubborn habit people have of assigning round values to things — or to themselves — even when the actual worth of the object or the person could be more or less. Most of that comes merely from convention. “It’s sort of counter-normative to be precise,” she says. “People use round numbers because they’re easier to use and it’s what we’re familiar with, so it’s a practice that sticks.” Indeed it does. On the real estate site Zillow, for example, Mason and her colleagues found that nearly all initial sale prices for homes are listed in round numbers, with barely 2% of sellers assigning a fixed value to their property.
To find out if that tidiness pays, Mason and her colleagues recruited 1,254 volunteer negotiators from among graduate students and undergrads, as well as via Amazon.com’s Mechanical Turk — a crowdsourcing site that can be used for anything from raising venture finds to collecting images of old baseball cards to, increasingly, conducting scientific research. All the volunteers, both virtual and in the lab, were assigned the task of negotiating for one of a range of objects. They were given a time limit of 10 or 15 minutes and in the case of the students, were told that the results would be revealed in class so the good hagglers could be compared with the bad ones. This gave them an incentive to reach a price as opposed to merely butting heads over one and to work hard for the deal that most favored them. At the end of their negotiations, the subjects were required to report only three bits of data: the opening figure, whether it was the buyer or seller who proposed it, and the closing price — but that was all that was necessary.
The study’s hard data will not be revealed until the paper is published this month, but the broad conclusion was unmistakable: people who offered or asked for precise amounts — including such arbitrary-seeming figures as $5,015 for a piece of jewelry as opposed to $5,000 — almost always wrung more concessions from the person on the other side of the table than those who opened with neater numbers. The reason, Mason believes, is that a precise number — rightly or wrongly — implies you’ve done your homework and know the actual value of the thing.
“It’s a powerful signal,” she says. “It suggests, ‘I know what I’m taking about.’” Even if the negotiations are protracted, a precise figure at least frames the discussion. “If you say you want $10 for something, the other party takes that to mean a range of $7 to $13. If you say you want $11, that range becomes $10 to $12. The initial figure exerts a kind of gravitational pull.”
That’s not to say you can’t overplay the precision hand. Too exact a figure insisted upon too adamantly may simply alienate the other person and lead to no deal at all. “You don’t just say, ‘I’ll sell it to you for $17,’” says Mason. “You say, ‘I’ll sell it to you for $17 and here’s why that makes sense.’”
It’s in salary negotiations, of course, that the stakes for good haggling are the highest, but it’s here that Mason’s rules may be hardest to apply. For starters, it’s the employer who usually makes the opening bid, offering a job that has a certain salary budgeted into the payroll. It’s also the employer who typically has the least to lose — particularly in an economy in which unemployment is still high. A prospective employee who does some advance homework may nonetheless make use of the precise-figure strategy. If you’ve discovered that the average salary across the field for the job you’re being offered is, say, $65,000, you don’t seem crazy if you go in asking for that $68,250 figure, since that’s also a tidy 5% above the going rate. The next step is making the case that you’re worth it, which is not always easy. And that, alas, means that the final step — as Mason herself concedes — may often be knowing how to take no for an answer.