From the Harvard Business School Working Knowledge website, comes this tip for next time you are negotiating to by a car, house or even a company.
When making an offer, use a precise number, not a round one
Offer to buy something for $23.71, not $23 or $24. Why? In recent research conducted by two HBS professors, mergers and acquisitions investors who offered “precise” bids for company shares yielded better market outcomes than those investors who offered round-number bids. Not only were sellers more likely to accept a precise bid, they were more likely to accept it at a cheaper price.
The research is not unique to this study–it matches outcomes in similar research ranging from the use of an online game based on the TV show, The Price is Right, to negotiations involving real estate.
Why?
“A round number gives the signal that the party doesn’t really know what it’s doing,” according to Matti Keloharju, a visiting scholar at Harvard Business School and co-author, with Petri Hukkanen, of the research. “Precision indicates determination” and the kind of confidence that communicates that the bidder has done the research necessary to know exactly what the value of something is.
But don’t go overboard!
Keloharju warns that a bid too precise may make the bidder look suspicious, or even ridiculous, to the recipient. “Bidding $1.03 million for a house is one thing. Bidding $1,033,235.83 is another.“If a bid is too precise, it may strike as strategic to the recipient, rather than being driven by superior information,” Keloharju says.
Featured photo: ThinkStock | Photo of Mule Auction: Tanya via Flikr