Study: If you always use a specific number when you negotiate, you’re doing it wrong

The speed-money tradeoff.
The speed-money tradeoff.
Image: Reuters/Jason Lee
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Salary negotiations have plenty of artistry, but research is showing there’s also an underlying science.

The starting number can have a huge impact on getting what you want and how long striking a deal will take.

It’s been shown that putting forth a very precise number ($109,000 versus $100,000, for example) is effective in ultimately getting what you want. The thinking is that you’ve put a lot of thought into that number and are unlikely to budge.

However, if you want to get a deal done quickly, you’re better off with a round number, according to a new NBER working paper from researchers at Cornell, UC Berkeley, and eBay’s research lab.

The authors analyzed millions of two-way eBay auctions as a proxy for salary and other negotiations. Such auctions have both a “buy it now” and “make an offer” option.

The research found that round listings get lower initial offers and sell for 5% to 8% lower than similar precise listings. But they get offers more quickly, sell six to 11 days faster, and are 3% to 5% more likely to sell overall.

There’s a pretty simple reason behind those results, the authors think. A round price is what’s called a “cheap talk” signal. People signal that they have a weak bargaining position with a round number in order to attract buyers and sell more quickly. It’s a sign to buyers that they’re willing to move down.

Without that signal, people on both sides are more likely to play hardball to get the best deal. That makes bargaining more likely to go wrong, with significant negative consequences. A failure can derail everything from an important deal to a relationship with a boss.

A round number offer eases things along from the start.

It wasn’t just savvy buyers taking advantage of novice sellers. Some of the most experienced sellers in the study consistently used round numbers. The thinking about specific numbers was also borne out in the research. People using them were  far less likely to accept first offers at any price, and made much more aggressive counteroffers.

This kind of tradeoff has been shown elsewhere. Another recent study on salary negotiations found that starting with an extremely high number leads to higher salaries, but it was also much more likely to end talks entirely.