ROBERT SIEGEL, HOST:
From researchers at Columbia Business School comes the following useful advice: When you're negotiating the price of a car or a house, when you pick the number that you're going to ask for first, be careful. Don't pick a round number. Associate professor of business, Malia Mason, studied this and she joins us now. Welcome to the program.
MALIA MASON: Thank you.
SIEGEL: And first, give us an example. What do you mean don't pick a round number?
MASON: So if you're negotiating for, let's say, a car, you're buying a used car from someone, don't suggest that you'll pay $5,000 for the car. Say something like, I'll pay you $5,125 for the car or $4,885 for the car.
SIEGEL: Why should that be a more successful tactic of negotiating?
MASON: It signals that you have more knowledge about the value of the good being negotiated.
SIEGEL: Somebody says 5,000 to me and I think, ah, they don't know much. But if they say, $5,123.50, I think, boy, they must have looked up some table of the values of used cars or something.
SIEGEL: You've actually studied this. How many transactions did you look at and what kinds of transactions?
MASON: We looked at listing prices on Zillow, the real estate website. We also looked at the prices that our executive MBA students and MBA students were using and suggesting in simulated negotiations in classroom exercises. And what we found was that indeed it is the case that people have a habit of using round numbers. We then took this into the lab and studied it in six studies involving hundreds and hundreds of people.
SIEGEL: And it all bore out the feeling that the more precise a number is, the less rounded, the better you do in the negotiation.
MASON: And I think you want to compliment that number with some reasons. Where did you get that number? The chances that you're successful really come down to how much research you've done and having an informed view of the good.
SIEGEL: If you open with a round number, the impression is that you've already rounded it off.
MASON: It's funny because I think what actually ends up happening is I'm buying something from you and I say I'll buy it for $4,985. I think that you hear she'll buy it for $5,000, but it's a firm $5,000. It's not a somewhere between 4,800 and $5,200, which is what 5,000 implies.
SIEGEL: But if you started at 5,000, I'd think, ah, I can probably get her up to 5,200 or something.
SIEGEL: Have you heard a lot of confirming anecdotes from people about this since your work was published?
MASON: You know, I think that it's only recently been published as the first thing to say. On some level, I think it's fairly intuitive. You know, I get a little pushback from people about isn't it awkward to be really precise, and I think that's a valid statement and criticism. I can't provide a rule that's always going to work in any negotiation but what I can suggest to people is that you be well served to err on the side of being at least a little more specific. And then, looking for other ways to signal that your offer is based on some facts and figures, not on nothing.
SIEGEL: Well, Professor Mason, thank you very much for talking with us about your work.
MASON: Thank you so much.
SIEGEL: That's associate professor Malia Mason of Columbia Business School, talking about the power in negotiations of precise, as opposed to round, numbers. Transcript provided by NPR, Copyright NPR.