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When Negotiating a Price, Never Bid with a Round Number

(Image: Monty Python's The Life of Brian)

When you're negotiating the price of something, you should offer a precise amount, not a round number. The other party is more likely to accept your bid. Proposing a round number signals that you don't really know the value of the good being priced. Carmen Nobel explains the Harvard Business Review:

Here’s an easy tip for anyone negotiating to buy a car, a house, or even a company. When you make an initial offer, don’t bid with a round number like $10,000 or $1 million or $15 per share. Rather, bid with a more precise number, like $9,800 or $1.03 million or $14.80 per share.

According to a recent study of mergers and acquisitions, investors who offer “precise” bids for company shares yield better market outcomes than those who offer round-numbered bids

“It turns out that if you make a precise bid, the targets are more likely to accept it, and more likely to accept it at a cheaper price. And with cash bids, they’ll generate a more positive market reaction,” says Matti Keloharju, a visiting scholar at Harvard Business School and co-author, with Petri Hukkanen, of the paper Initial Offer Precision and M&A Outcomes.

-via Marginal Revolution


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