Negotiation Science

The Power of Precision: How Odd Numbers Boost Your Earnings in Salary Negotiations In the realm of salary negotiations, securing a hefty paycheck is not only about delivering top-notch performance; it’s also a testament to your negotiating skills. According to social psychologist David Loschelder of Saarland University, a simple but effective strategy can significantly increase your earning potential: the art of using unconventional, slightly skewed numbers. Loschelder, along with colleagues from Trier and Lüneburg, Germany, conducted experiments to unravel the science behind successful bargaining and applied their findings to salary negotiations. In their first experiment, the team posted 120 offers for items such as car tires, bicycles, and game consoles on an online platform. These items were originally priced at €200 each. The researchers strategically offered amounts ranging from €115 to €125, with intentionally precise numbers such as €121.37. The result was striking: using these unconventional amounts resulted in an average savings of ten euros. In the second experiment, the researchers took on the role of salespeople in an antique shop. They put an Art Nouveau secretary up for sale at two different starting prices- €1,200 and €1,185. Remarkably, when the item started at €1,185, it fetched an average final price of€1,046, compared to €930 when the starting price was €1,200. Starting with an amount that was €15 lower resulted in a surprisingly higher final price, averaging €116 more. According to Loschelder, these research findings can easily be applied to salary negotiations. Whether you’re discussing the price of a game console or your own salary, providing an accurate figure signals to your counterpart that you’ve thought through your request. This perception of competence can work in your favor. Odd numbers also offer another advantage. When amounts end in even numbers, such as €45,000, people often think in terms of thousands. However, stating a number like €44,700 encourages negotiation in hundreds, which gives you more room to maneuver. Rasmus Tenbergen, a salary coach who earned his doctorate in negotiation techniques at Harvard and advises large companies such as Siemens, Daimler, and SAP, supports this approach. Tenbergen explains that employees often round off their salary expectations, inadvertently giving up potential earnings. For example, if you ask for €65,000 a year, you might get a counteroffer of €60,000. But if you ask for €63,500, the typical counteroffer is more likely to be around €62,000. It’s important, however, not to set your salary too low, as your counterpart may question the value of the offer. In general, the price should not be set too low. Otherwise, the other party will unconsciously look for explanations for the low offer. “If I offer a car for €24,865 , the buyer will accept the price and say to himself: ‘That’s right, apart from the small scratch, the paint is great, and the mileage is also quite low at 85,000 kilometers. If, on the other hand, I ask only €15,323 for the same car, the buyer will argue inwardly: ‘There’s a small dent, and the car already has 85,000 kilometers on the clock. Then the offer seems too cheap,” explains David Loschelder. But there is a difference between haggling over sales prices and haggling over salaries: When it comes to offers, it’s okay to haggle to the penny, but when it comes to salary, it’s better not to. Of the 200 test subjects, some of whom didn’t even know they were taking part in an experiment, none asked why, of all things, €121.37 was being offered. “Some of the people were amused by our offers, but no one was annoyed,” says Loschelder. But if possible, you should only state your desired salary in pennies: “Otherwise you won’t be taken seriously.” Want to train your negotiation skills? Register for our next free negotiation sparrings session here About the author and snipers.sale Constantin Papadopoulos Co-founder of snipers.sale Our participants benefit from expertise in psychology, communication and business negotiation to maximize their negotiation outcomes. Follow-us on LinkedIn This post was inspired by a German article in the Spiegel – Credits to – https://www.spiegel.de/karriere/tipps-fuer-gehaltsverhandlung-krumme-zahlen-besser-als-gerade-summen-a-929073.html

To Anchor or Not to Anchor – That is the Question The Psychological Foundation of Anchoring Anchoring, as a cognitive bias in decision-making, is pivotal in negotiations. This concept was initially explored by Amos Tversky and Daniel Kahneman, pioneering figures in behavioral economics. In their landmark 1974 paper, “Judgment under Uncertainty: Heuristics and Biases,” they presented the anchor-and-adjust hypothesis. This theory posits that people start with an initial value or starting point when making estimates or predictions and then adjust from there. The anchoring bias occurs because these adjustments are often insufficient, leading to skewed decision-making. Tversky and Kahneman’s Empirical Evidence To substantiate their theory, Tversky and Kahneman conducted a study with high school students, who were asked to quickly estimate the product of sequential multiplication problems. The median estimates varied significantly depending on whether the sequence started with a high number (8, 7, 6, …) or a low one (1, 2, 3, …), demonstrating how the initial number served as an anchor. This experiment vividly illustrated how initial values can skew perception and decision-making. Find out more about this experiment here. Anchoring in Practice: Lessons from Personal Experience Reflecting on my early career as a sales consultant, I recall anchoring too soon in a B2B negotiation. The immediate acceptance of what I thought was an aggressive offer led to a realization of the importance of understanding my counterpart’s willingness to pay. This experience taught me the value of inquiring more about their actual reservation price before setting my anchor, highlighting the critical need for thorough preparation and understanding of the other party’s valuation framework. The Flea Market Dilemma: A Hypothetical Case Study Consider a scenario in which you discover a Renaissance masterpiece at a flea market. Should you offer a price first or wait for the seller? While it might be tempting to set the initial price, especially if you recognize the item’s true value, letting the seller anchor can be advantageous. This approach is particularly effective if the seller undervalues the item, setting a lower floor for negotiations. From a legal standpoint, while the ethics of such a scenario can be debated, focusing on the business perspective, it illustrates the importance of assessing the seller’s knowledge and valuation of the item before making your move. Strategic Anchoring: When Market Value is Known When both parties are aware of an item’s market value, anchoring can be a powerful strategy. Setting a high anchor, with solid justification, can give you leverage in negotiations, enabling room for concessions and a broader range of outcomes. Beyond the First Number: The Nuance of Anchoring Anchoring involves more than just stating the first number. It’s a complex strategy that demands an understanding of psychological dynamics, negotiation context, and value perception. Success in anchoring hinges on the negotiator’s ability to read the situation, empathize with the other party, and anticipate responses. So what shall you do? Understand the Context and the Counterpart: Research thoroughly to understand the needs, expectations, and market context of the party you’re negotiating with. Determine Your Anchor: Set an ambitious yet justifiable initial offer, considering the value and market rates of what’s being negotiated. Establish Credibility: Present your anchor confidently, using data and market trends to justify your initial offer and establish its legitimacy. Prepare for the Counteroffer: Anticipate potential counteroffers and plan your response, deciding in advance your negotiation range and limits. Use the Principle of Reciprocity: Be ready to make strategic concessions, always seeking something in return to maintain a balance in the negotiation. Conclusion: Anchoring as a Strategic Choice in Negotiations Anchoring, with its roots in the seminal work of Tversky and Kahneman, is a nuanced tactic in negotiation. Its effectiveness relies on understanding psychological influences, market dynamics, and specific negotiation contexts. By judiciously assessing whether to anchor and how to react to an opponent’s anchor, negotiators can enhance their chances of achieving favorable outcomes. Share with us your experience with anchoring in the comments. About the author Constantin Papadopoulos Co-founder of snipers.sale and negotiation engineer. Our participants benefit from psychology, communication and business negotiation expertise to maximize their negotiation outcomes.