The IdeaMaking a precise first offer in a negotiation makes you seem better informed, which leads your counterparty to concede greater value to you.
In making opening offers, people generally use round numbers — listing a car for $10,000, instead of $10,125. New research by Professors Malia Mason and Daniel Ames and doctoral students Alice Lee and Elizabeth Wiley highlights the folly in this round number habit and reveals that negotiators can be more effective when they use precisely expressed opening offers. According to the researchers, the precision with which a negotiator conveys an opening offer — as $100 versus $98 or $102 — signals his or her confidence in its appropriateness. Negotiators who make precise first offers seem better informed of the good’s true value, and more credible offers tend to prompt more conciliatory responses from recipients.
Across a series of studies, the researchers found that precise offer makers received greater concessions and secured better final settlements than round offer makers. In fact, in some cases they found that a negotiator making a round offer ($50.00) fared better when she conceded on price and opened with a slightly less extreme but precise offer (for example, $49.75 if she was a seller; $50.25 if she was a buyer).
Although their research highlights the potential downsides of round first offers, the researchers acknowledge the possible risks in being precise. Just as overly extreme first offers lead to higher rates of avoidable impasses, overly precise first offers might signal inflexibility and prompt recipients to walk away from mutually beneficial deals.
These findings are relevant to almost any negotiation over a quantity (for example, a price, a time, etc.). A babysitter who is negotiating with a parent and hopes to be paid $9 an hour may be better off making an initial offer of $9.75 than of $10; likewise, a project manager negotiating the date of a key deliverable is better off asking for 14 days rather than two weeks.
Being precise signals that you have researched the subject and put thought into your offer before expressing it. It’s not just about the numbers, it’s about what your price proposal implies about the state of your knowledge. It’s therefore important for precise offer makers to be prepared to offer a rationale for the price they suggest.
Daniel Ames is professor of management and coordinator of the Decision Making and Negotiations Cross-Disciplinary Area at Columbia Business School.
Malia Mason is the Gantcher Associate Professor of Business in the Management Division at Columbia Business School.
Read the research
About the researcher
Malia Mason studies negotiations and social judgment and decision making in one line of work. In a second, she studies how people regulate their...Read more.
About the researcher
Professor Ames's research focuses on social judgment and behavior. He examines how people judge themselves as well as the individuals and groups around...Read more.