Should Negotiation Offers Be In Round Numbers Or Precise Numbers? (A Study)

By: Donald L Swanson

A study on using round-number offers and precise-number offers in negotiations reaches these two conclusions:

Round numbers signal completion—and so, negotiators are more likely to accept a round number offer (e.g., $3,000) than a precise number offer (e.g., $3,278.23); and
Precise numbers are perceived as factual and more difficult to process, and signal the offer maker’s competence and confidence—and so, negotiators are more likely to counter a precise number offer, with a smaller gap, than a round number offer.[Fn. 1]

Five Experiments

The study works through five separate experiments.

The first experiment shows:

making round offers in negotiations is advantageous when acceptance is the primary objective, because round offers are more likely to be accepted than precise offers, even when the precise offers are better; but
when the goal is to obtain the best possible counter-offer, precise offers are better.

The second experiment shows:

participants receiving a round offer are more likely to accept than those who receive a comparable precise offer; but
precise offers increase the likelihood of continuing the bargaining process (i.e., receiving a counteroffer).

The third experiment interjects a strong motivation among participants to achieve the best possible result in negotiation and shows that the findings of the first two studies (i) continue to exist, and (ii) are robust.

The fourth experiment shows that the effects of numerical roundness on negotiation arise from a sense of completion.

The fifth experiment also demonstrates that the effects of numerical roundness on negotiation are connected to the feeling of completeness or closure.

Implications

The study describes implications as follows.

Whether an offer should be a round number or a precise number depends on the goal:
- When the goal is to get-to-conclusion without a counter-offer, a general number is advisable; but
- When the goal is to reduce the magnitude of an expected counteroffer, a precise number is advisable.
That’s because,
- Individuals prefer using round numbers (i) as goals, and (ii) to symbolize completion;
- Negotiators are more willing to accept a round offer than a comparable precise offer; and
- Whenever the experiment participants make a counteroffer, the precision advantage emerges in robust fashion.

The study makes this recommendation. Negotiators should:

make precise numerical offers at the early stages of negotiations when the parties are going back-and-forth, and then
switch to a round numerical offer when they are ready to close the deal.

General Tendency—Not Universal Application

The study shows a general tendency, which won’t have universal application.

Circumstances where the general tendency might be inoperative include:

When the negotiations involve great complexities;
when other cues, like body language, facial expressions and emotions, override the general tendency; and
when a negotiator’s experience, expertise and processing resources override the general tendency.

Illustrations

The study offers the following illustrations of its findings from other studies and sources.

–Illustrations of Precision.

Contestants on The Price Is Right television show are asked to estimate the price of products with audience help—contestants prefer receiving precise estimates over round estimate;
Consumers are likely to judge a precise price (e.g., $364,578) to be smaller than a round prics of similar magnitude (e.g., $364,000)—and such a perception causes negotiators to counter with a smaller gap; and
Two different studies find that the sale price of a house is higher when the listing price contains fewer ending zeros (i.e., is more precise).

–Illustrations of Roundness.

When exercising on treadmills, people often stop when their data displays as a round number, such as (i) 10 miles, 30 minutes or 500 calories, or (ii) “5.6 miles” instead of “5.60 miles”;
Professional baseball players are four times as likely to end the season with a .300 batting average as they are to end the season with a .299 average;
High school juniors are much more likely to retake the SAT if their total score ends in 90 (e.g., 1190) than if it ends in 00 (e.g., 1200); and
People are more likely to open a new life chapter on the 100^th day after a break-up (vs. the 98th or 103rd).

–Illustration of Association.

Consumers associate food tastiness with unhealthiness.

–Illustrations of Closure.

When asked to write about a decision they regret, some participants are instructed to seal their writing in an envelope, while others are not—those who seal their recollections experience less regret than those who do not; and
Expressions like “putting a lid on” or “turning a page” are metaphorically associated with a sense of closure and satisfaction.

Conclusion

According to the study described above, human reactions to numerical roundness vs. numerical precision should be factored-in to negotiation strategies and tactics.

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Footnote 1. The study is Round Off the Bargaining: The Effects of Offer Roundness on Willingness to Accept, by Dengfeng Yan and Jorge Pena-Marin, published by Oxford University Press on behalf of Journal of Consumer Research, Inc., Vol. 44 (2017).

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