When negotiating for a salary, most of us reach for a nice, round number like $5,000 a month Or $120,000 a year.
But, by favouring all those zeros, we may be missing an opportunity to get a better deal, according to a new paper from researchers at Columbia Business School. They found that using more precise numbers in an initial request—or anchor, as it is known in psychology parlance—generally results in a higher final settlement.
Precision conveys the impression that the job candidate has done extensive research and more deeply understands the market for their services, said Malia Mason, the lead author of the paper and a professor at Columbia who teaches a course on managerial negotiations. When people use round numbers, by contrast, they’re conveying that they have only a general sense of the market rate for their skills. And on the other side of the table that specific knowledge is valued.
This concept can be used for other types of negotiation as well.
In one experiment, Ms. Mason and her team had 130 sets of people negotiate the price of a used car. When buyers suggested a round anchor, they ended up paying an average of $2,963 more than their initial offer. But buyers who suggested a precise number for a first offer paid only $2,256 more, on average, than that number in the end.
When it comes to negotiating salary, Ms. Mason’s research indicates that a job candidate asking for $63,500 might receive a counteroffer of $62,000, while the request for $65,000 is more likely to yield a counteroffer of, say, $60,000, as the hiring manager assumes the candidate has thrown out a broad ballpark estimate.
“We often think a higher anchor is the way to go,” said Ms. Mason. “But you risk upsetting people if you’re too extreme. We found that you could be less extreme if you were precise and still do better in the end.” The best strategy, she added, is to start with a high (but not extreme) number that is also precise.
So next time you ask for a raise or get offered a new job, consider asking for something like $5,350. And ignore the odd looks you may receive in response.