The idea is that the bidder's precision signals confidence, and that low confidence signals amenability to negotiation, and that negotiation leads to poorer outcomes for the bidder. The HBS paper they cite on M&A [0] is most interesting, to my view, in the sense that both players in the M&A "game" are presumably quantitative. One would think a social psychology effect would be less so in a game between quants, but their interviews suggest perceived confidence does matter. The precision signals that the bidder is confident pricing and negotiating analytically.
The thing I am curious about in [0] is that they report the bid price per share, and not (unless I missed it) the asking price. I don't know how M&A "works". If you and I are both estimating the value of a good, if our estimates are close it's one thing and if they are far apart it's another. Are rounders losing because their estimates are less accurate, relative their counterparty's?
You have exactly the same effect in play if somebody calls you and ask how long it takes for you to arrive to a meeting point. If you answer 10 minutes, it will be seen as an approximation between 10 and 20 minutes. If you answer 8 minutes, it will be considered as 8 +/- 1 minute.
This is really impressive, this works each time. Especially if you are on ski slopes and you have two groups trying to meet at a given point. 10 minutes == "We can do another run or two". 8 minutes == "We need to pay attention, they are coming right now!"
Per U.S. Census data, relatively few people have a commute in the 5 minute block from 25 to 30 minutes. Only 20-25, and 30-35. The data shows a very clear valley in the 25-30 block.
Suggests people think of their commute as 20 plus a few minutes but rounding down optimistically, or think of it as almost 30 minutes rounding up angrily, never think of it as 27 minutes.
No writeup of the commute data has mentioned this phenomenon, which I suspect was exactly the same thinking you describe.
> If you answer 10 minutes, it will be seen as an approximation between 10 and 20 minutes. If you answer 8 minutes, it will be considered as 8 +/- 1 minute.
Unless you're talking to a child who has not yet internalized this distinction! My kid frequently asks exactly how much time has passed, and I sometimes have to explain that I don't mean five minutes literally, but figuratively.
Although your answer may be closer to the truth, this paper suggests using a fixed number not divisible by 1 or 5. So, for example, 6 minutes and 23 seconds.
To replace that with saying 383.512 seconds would signal confidence in the time of a future event, but not in a speaker who is scheduling a meeting with another human.
But its hard to extend this one to prices and bids. If you give a range of money, people will come back and say "but you said you could do it for [the lowest possible number you gave]"
The answer is to make it clear what the tradeoffs are. For example it could be more cash and less stock. Or lower price but longer lead time. Just offering a range without any other variables would be foolish, and complicated negotiations usually have more factors than just price.
My german friend taught me this. Now I do exactly what you say, if it's an approximate, I say 5-10 mins. If I'm being more precise, I'll say 4 mins, 7 mins etc, which does exactly what you mention: it "suddenly" turns the approximation into a time critical event.
And yet, how often are prices at a store still quoted as $4.95? or $10.99? We all know what the psychology of pricing is, and yet it still persists. People are strange and illogical creatures.
They just round more than you: I think your presumption that others should think like you is bizarre. Some people only round to 10 cents. If you are wealthy enough, you could easily round 10.99 to $0.
> I think your presumption that others should think like you is bizarre.
What I actually wrote was "bizarre to me", not just "bizarre" (as in your quote), so I don't think it's fair to say that my comment conveyed such presumption
Keeping with the arrival time estimate, and I’m not sure if this answers your question
But I live in a very dense city (Chicago), it’s become almost “set your watch to it” reliable that not only are estimates more reliable from friends who live here when they say “I’ll be there in 8 minutes”, they’re also seemingly more likely to offer such a precise estimate because they know the area, light timings, and traffic patterns and that certain kind of behavior found among drivers in this city.
Compared to when I have friends from out of town renting a car they’ll tell me “GPS says we’ll be there in 10 minutes” I instinctively add another 10 and it’s never failed that they’ll show up and go “that was a long 10 minutes!” And I just smile.
I lived in a part of town that was in the process of infill so a lot of people “knew” it without really knowing it.
It was practically a given that the first time someone visited they would arrive 15-20 minutes later than they estimated. It seemed like an area without a lot of traffic but it was in that uncanny valley where there’s enough traffic where you catch a lot of lights, and you aren’t turning right on red because there are people in front of you, and you may or may not make the left turn light on the first cycle.
Also the whole city is so tuned for one direction of traffic that it takes longer to go across the narrow dimension than the long one.
There was a movie theater that I found I could reliably get to faster on a Friday evening if I drove five blocks past it and doubled back, the lights were that screwed up. 15 blocks faster than 5.
> One would think a social psychology effect would be less so in a game between quants
One would, but the little I've seen & heard about due dilligence around M&A (and startup investments for that matter) tells me it's nothing close to "quant". People decide they want to buy something, and then try to get it for a good price, and try to have it so that due dilligence works to reduce the purchase price, while not actually finding anything to block the deal. Perhaps in public company acquisitions there's more sophistication, but I really doubt that.
> People decide they want to buy something, and then try to get it for a good price, and try to have it so that due dilligence works to reduce the purchase price, while not actually finding anything to block the deal. Perhaps in public company acquisitions there's more sophistication, but I really doubt that.
That's indeed how it works in my experience. Thay's also why, as a seller, you want to invest a lot of time making sure that the due diligence scoresheet will be as clean as possible - because then, there can be no mechanical way for a prospective buyer to lower the price: only their belief against that of other prospective buyers...
> People decide they want to buy something, and then try to get it for a good price, and try to have it so that due dilligence works to reduce the purchase price, while not actually finding anything to block the deal
Here's a sales secret: this is how most people and businesses buy things most of the time. Key stakeholders (which may not be the big boss) decide they want something then find reasons to justify it. They'll only abandon the deal if there are true blockers either on price or features. And by "big boss" that can be a parent, spouse, Director, CxO, Board, etc. The buyer decides they want a thing and will set about convincing whoever needs convincing. The more you can make them engage emotionally the harder they'll go on securing approval.
If you're a startup selling to companies have one or two impressive "wow" features to make people decide emotionally they want your product, even if they don't seem like important "bread & butter" core features. It makes the rest of the process a lot easier.
Same goes for selling to consumers or even app videos/screenshots: sell people on your product emotionally within the first 5 seconds if you can.
For public companies, the quant part has been calculated by the market. Everything that remains is, almost by definition, in the realm of the irrational, unknowable and/or political (usually at the Board level, though government factors could also be involved).
And then you go on to say "everything that remains is ... in the realm of the irrational", everything you have laid out is in the realm of the irrational. Including the market.
> you go on to say "everything that remains is ... in the realm of the irrational", everything you have laid out is in the realm of the irrational. Including the market.
This discussion devolves into useless semantics if we rely on colloquial definitions. In case it wasn't clear, the predictable, explicable parts of a public company's value are generally priced in by the market. (If they're not, we're in a chaotic environment and nobody's doing classic M&A.) It's the other stuff, which we put in a bucket titled "irrational," M&A bankers address.
This is why the cash-flow models bankers prepare are largely performative. Every buyer builds their own models. And most of the time, the market does the modeling for them. The part the market can't model, the things one seeks to do with control, is the main attraction.
I caveated the comment because private company M&A is different. There, the negotiation does focus on valuation. Quality of assets. Current cash flows. Strength of contracts. Discount rates tied to the actual cost of financing versus an MBA model. While public company M&A dresses financial strengths and weaknesses in the language of partnerships, private company M&A seeks to address political issues (e.g. a senile founder with voting control) through talk of fundamentals.
Well, the market does follow a set of rules (buy-sell pressure), but it's not necessarily reflective of actual value of a stock. More a heard consensus (which is why we get bubbles).
The other side is also not necessarily irrational, but much less deterministic. For example, there is the question if the board even wants to sell, if they like the potential buyer, if they have a vision for the company that aligns with the buyer and some non-tangibles. Charisma projection and speech-craft definitely has an influence too, as has track record.
The more factors are in alignment with the board, the closer the price is to the stock value. The more hostile the negotiation, the more it moves away.
> it's not necessarily reflective of actual value of a stock
An econ 101 trope about the value of stock ties it to the value of future dividends. This is technically correct, but practically useless. You don't get those dividends unless the Board gives them to you, and investing on the hope that a Board throws you candy is just a hair short of stupid.
The real enforcer of value in the markets is M&A. In M&A, you become the board. If there are cash flows, you can take them. If there aren't, you can't. You're playing a game of looking for things the market and/or management missed or couldn't access. Furthermore, the moment that process starts, the moment negotiations become public, smart people focus on the stock to anticipate those terms. If they think another buyer could see cash flows you don't, they'll bid it up and the Board will take the signal (as will those other buyers and their bankers); if they don't, if post announcement the stock keeps trading below the bid, the Board will take the hint.
PS: in the case of Musk and Twitter, which I believe started this discussion..
It's Musk, so you can throw out the book. He just takes the stock value and then tweaks it so that the offer contains 420 because obviously that's his shtick since some time.
Musk's Twitter takeover is a textbook LBO transaction. The negotiations were unorthodox. But that's been true of LBOs since the 80s. Usually the bankers were the ones up to the antics; this time it's the principal.
LBO, Leveraged Byout. I had to look it up. “A leveraged buyout (LBO) is the acquisition of another company using a significant amount of borrowed money (bonds or loans) to meet the cost of acquisition.”
I took this to apply to common things like buying a house, not M&A, but I think when you get a little emotionally invested in buying something the same concepts apply. Specifically, there's a phase where you've decided you want it already, but now you want to get the best price possible. The people selling it know you already want it, so they have all the leverage unless you're completely willing to walk away. In this scenario, setting an arbitrary target price makes sense, but only if you're completely unwilling to negotiate.
>> If you and I are both estimating the value of a good, if our estimates are close it's one thing
Yeah, if I say €193,345 and they say €1 million, that last five euro would look a little stupid. This is a scenario where already being close to knowing their closing figure is everything.
The proper analysis here would be: What's the chance you get your <1% edge versus losing a deal by being stuck on a number too early?
The way M&A usually works is that all sides have bankers/advisers who run Excel spreadsheet calculations that come out with different precise numbers depending on a couple of scenario parameters. Those are put on PowerPoint slides and presented to management. The decision whether to go with one of the precise numbers (or some aggregate thereof), or some close by round number has more to do with bidding tactics, game theory and psychology, so I think this research actually quite interesting.
If you're a manager involved in some bidding process, what this article is telling you could be somewhat loosely rephrased as "use the Excel numbers rather than the ones that stuck in your head after the presentation", which is interesting advice.
I've seen a few M&A experts run their spreadsheets and then the negotiations happened. In reality 90% of the outcome was determined by how competitive the bidding was and how willing the target company seemed to walk away. All spreadsheets went out the window in the first phase.
It seems like it would also affect the mental granularity of any counter offer. If I bid $10,000 someone might be like no way to high how about $8,000! Cause the significant digits were working with are in the 1000s. But if I say $10,542. They might be more likely to focus on the detail and come back with 10,100 or something.
In general it's the buyer who names a price first. Take the current Twitter acquisition, the board weren't trying to sell the company at all and Elon Musk made an unsolicited bid of $54.20/share.
Other times the board may be actively looking for a buyer and have a price in mind, but it will still typically be up to the buyer to propose a deal. Not least because the number isn't the only thing being negotiated: the buyer will likely have a range of stipulations or conditions attached to the bid so every bid will look different.
I also suspect that sometimes the bid price is a signal to others besides the company being bought - and a number that’s easy to digest might help in media, etc.
>One would think a social psychology effect would be less so in a game between quants
Is the presumption that a "quant" bases their decision on logic alone and that's why they wouldn't be susceptible so social psychology? Maybe someone with more background can elaborate but I think behavioral psychology might refute that assumption.
Another extremely successful tactic I stumbled upon by accident: electing a 3rd party decision maker that the other negotiator can't communicate with. Without the communication channel, the other negotiator is forced to "sweeten the deal" instead of using conversational skills.
I received a job offer while my wife was traveling. The number was right for me and the job/company was right. But I told the hiring manager that I needed to talk it through with my wife first and that I'd need a few days (no context about why I needed the time or which direction I expected it to go).
She got home 3 days later. We sat down, talked it through for 10 minutes, and we were ready to accept.
In the time between the initial offer and accepting the offer, I received 3 updated offers with increasing compensation. The final offer I accepted was $75k higher than the initial offer.
After experiencing that, I've noticed companies use this tactic frequently. When you call into a help center, often times the phone operator "will need to talk to their manager" who is authorized to make the actual decision. You aren't allowed to talk to the manager - all communication goes through the intermediary. I suspect they are aware that this is an effective negotiating tactic.
I agree with you about the benefits of disallowing your counter-party from communicating directly with the final decision maker (for the purposes of a negotiation), but I don't think that's what call centers are doing. Front-line agents screen a lot of calls by people who have easy-to-resolve issues, or are just angry..
Hm, that probably won't work against a competent negotiator, but it makes sense! They invent some nightmare scenario where they lose you, and they end up bidding against their nightmare, rather than you.
I have used this to buy cars with great success (including getting well below MSRP during the pandemic). I even have a cheap aliexpress wedding ring I wear so I can more convincingly talk about "my wife" as the decision maker in the negotiations.
I doubt this would work in any other context because the sales / negotiations are less in-person (e.g. buying a house, where you only really go through your realtor I think; idk still haven't bought yet...).
It's a heuristic about the complexity of the number. If I have some idea bout the ways that you can come up with numbers, then the vast majority of numbers of low complexity were arrived at with short programs, or through rounding. Short programs tend to be heuristics themselves, and indicate estimates, and thus wide implicit error bars. Often even wider than the reported significance.
As long as there are still people negotiating this way, then it is rational to assume that people negotiate this way some proportion of the time and account for it in your own strategy. It's probably not stable in general.
I get what you're saying, but my point would be that the rounder the number you use, the more you're anchoring your negotiation to the rounding point, and the metric being used here seems to be the outcome of the negotiation. If someone says their price is £45,765 then the anchor is to the single pound. If someone says their price is £45,000 then the anchor is to £1,000s. I think there are both things - complexity and anchoring - at work, but I'd say the anchoring to the rounding point is actually most salient here and don't think it's necessarily much to do with perception of complexity, as attractive as that might be as an explantion.
I bid 701k on my house, whose asking price of 645k seemed on the low side. After winning the bid, I asked what the next-highest bid was. Turned out to be 699k. I'm so happy they took this unrounding advice in the other direction :-)
Often bond dealers will put out “bid lists” to customers or other banks of relatively illiquid bonds and ask for competitive bids for a handful of bonds. Invariably the buyer with the winning bid on a bond would ask “What’s my cover?”, that is “How much more did I pay than the next best bid.”
Importantly, there is no legal obligation to tell the them or especially to tell them the truth, and invariably the response would be “a tick” (1/32). The only time I’ve heard someone say someone tell the truth with bad news for the customer was “No cover - you were the only bid.”
That sounds like a closed bid, where any psychological tactics against other biders are ineffective... maybe if someone incorrectly attempts to apply open biding strategies it makes sense to think of number that would barely outbid those people (as you did).
But to be honest I'm not sure what they were attempting to signal with 699, that's a sales strategy to make the price appear lower, surely you want it to appear the opposite. I guess some people copy strategies without understanding them.
My realtor says when they have multiple offer and send out a request for "Best and Final Offers", hardly anyone ever changes their offer. They seem to be insulted about being asked for more after bending over backwards by going over ask, waiving all contingencies, etc.
I don't remember this was how putting an offer for a house worked. The seller is collecting a bunch of offers and picks the one they like the most. The offers can include escalation clause, but it's still more of a closed auction than the open auction.
Bought a house in SF last year. We lost two offers before securing this place. Both of the lost offers followed this pattern:
1. Set a bid due date
2. Ask three best offers for their "Best Final Offer"
3. We increased our offer (50k 1st case which was generous, 150k second case)
4. Lost, move on to the next showing. In the second case our BFO was 400k over asking, ultimate winner offered 600k over asking. Insanity.
When I sold my house in TX I also did the same: got two offers almost immediately after putting it on the market, so we went back to the buyers and asked for BFO. Both increased their offers.
Funny enough for our third winning offer we saw it the day before the Open House (which just started being allowed again) and put in our offer the day of the Open House. Won for around 50k over asking. I'm not 100% sure but from what I gathered an investor who wanted to rent it as an upstairs/downstairs duplex offered more but they wanted to sell to another family so they took our offer without asking for more money. I was very thankful for that - if they had come back asking for better offers we'd have walked.
The seller doesn't have to accept one of the offers, they can ask bidders to rebid or just let it sit on the market longer. If they got a lot of offers clustered around $700k, they might take the best (which might not be the largest, if there's a difference in contingencies), or they might try to get everyone to rebid, or maybe just the lower bidders to try to go back and forth. Of course, asking for a rebid usually means not accepting the firm bid, and there's a risk of putting off the potential buyers.
It's possible they were only approved up to a limited amount for a mortgage, and went to the top of that amount, or left some room for negotiation, and the top minus 5% came out to 699. Cash could also be a factor here.
It could also be that the buyer couldn't stomach paying 700 for the home, so they used the sales strategy on themselves to justify the price.
This also often worked on ebay for me, e.g. if you are willing to spend 60 $currency on an auction, make your highest bid 61.52 or something like that. The extra 1.5 dollars/euros/whatever doesn't really hurt but if there's many people who'd want to win the action for a similar price as you, it can be the distinguishing factor.
Yup. Same here for eBay and industrial equipment auctions - figure out my approximate maximum, consider the nearby round number, then add something almost trivial like the "1.52" in your example. While it obviously doesn't help if the bidding runs up to another level, I've found it helps a surprising number of times. And if you actually want to win the bidding, definitely do not skimp to below or at the round figure - that marginal extra will provide way more value than the cost (i.e., not losing & spending more time & funds getting the item elsewhere).
Now, I wonder how long it will take for auction systems to start suggesting this type of bid and ruining the strategy so we need to find another strategy...
> Now, I wonder how long it will take for auction systems to start suggesting this type of bid and ruining the strategy so we need to find another strategy...
To be honest, the immediate issue that is already there in this very moment is that more and more people no longer sell their stuff as regular auctions on ebay, but as completely overpriced fixed-priced offers. This is the main distinguishing factor for me between using ebay ten years ago and now. If everyone starts doing that, the best bidding strategies become useless.
It can sometimes be surprisingly difficult to sit down in isolation and decide what the ACTUAL maximum you're willing to pay for an eBay item is. That's part of the whole "auction" gimmick I guess: there can be an element of wanting to beat any competitors.
ebay is basically a second price auction, although not sealed-bid. I try to follow the strategy to bid my true value near the end of the auction, this is my only bid. I bid at the end to minimize the effect my bid has on other bidders. Then I just let the auto bidder to take over.
I had an extremely similar situation when we purchased our home last year.
The home had an estimated valuation of 320k but because of the ridiculousness of the US housing market bids were going for upwards of more than 20k higher than the asking prices. We put in our bid for 341,100 - and we got it. I found out later that the next highest bid was exactly 340,100. That extra 1k in our offer made the difference for us.
For a 2k difference, I hope the sellers evaluated both offers for contingencies that would complicate the transaction. It would suck to have to carry a house for an extra month or two and lose the $2k difference because Offer 701k can’t get their financing together! :)
People seem to forget about that. As a seller, a smooth transaction is far more valuable to you than a .3% price difference (and troubles can get way more uncomfortable than just a delay; you don't want some three-letter agency come knocking at your door asking questions about your buyer or where their money came from). Just to be clear, if you're not going for the best offer for discriminatory reasons that's definitely not ok (morally and might also get you into legal trouble), but AML or financing concerns are very valid reasons.
When we sold our house ~6 months ago we had about 7 offers and we took a solid, but middle of the pack offer in terms of price. Their offer also had strong pre-approval and financial info and they were the fastest to respond when the house went on the market. This showed us they wanted our house in particular more than the other bidders, especially considering the pre-approval for their loan and their other financial details. They were still stretching a bit to buy the house, but they came through and closed in like 3.5 weeks on a jumbo loan. Did we leave a few dollars on the table? Probably. Were we happy with the outcome, yep :)
Game theory for repeated games actually says you want to seem like a fair or generous player so that the other side doesn't defect and keeps wanting to play the game with you.
> ...you don't want some three-letter agency come knocking at your door asking questions about your buyer or where their money came from...
That does not sound realistic for a normal-homeowner U.S. real estate sale. There are generally two Realtors and a title company as professional intermediates in the transaction. The seller may only know the buyer's name if the seller spends time reading routine paperwork - which those intermediates create and handle. Why would the XYZ agents visit the seller - when the buyer's Realtor, buyer's bank, and title company have so much more information, insight, and experience on the matter?
I know a guy who backed out of a real estate deal that he'd really wanted for that reason (AML). He's a banker himself, maybe that's why he was a bit more on the edge wrt AML, but his attorney also recommended it. That was a normal (ok, nice) one-family home in an affluent suburban area, not a rock star villa in Beverley Hills.
He backed out as seller (the grandparent post's concern - "knocking on your door", post-closing), or buyer?
I can see it as buyer (you want a house, not a title insurance claim). But as seller...even having your own atty. involved seems pretty odd. It's the job of the Realtors, title company, and bank(s) to judge the buyer's money, and call it good or bad.
(Or did someone offer to buy your acquaintance's house, with no intermediaries, for a briefcase full of cash? That raises enough red flags that you could host a birthday party for Karl Marx.)
Apparently it’s normal to have an attorney when buying or selling real estate in New York. I found this pretty surprising, because in California the contract is a generic form where you literally just check the applicable boxes and write in numbers.
Another tidbit: in NYC, most people use an agent when they rent an apartment. They charge one month’s rent.
I’ve always had an attorney represent me for RE transactions, not in NY, though. It’s usually a couple hundred bucks and each time easily saved us money.
This is how I bought my house back when the market was bad. We had cash and financing and didn't have another house to sell. In my case at the time, it was a pretty decent discount.
It also helped the owner had been moved by his job, and was looking to get out of the house ASAP.
I think they're suggesting the seller should understand the risks of their undertaking. If they didn't do their due diligence it could end up being the case that the offer they take was the "worse" offer because the person making it couldn't back it.
That there are other considerations for a seller aren't really relevant when the post is about bidding just higher than a round number to win it. Just as explaining how you won the bid at 2k lower by having a cash offer and writing a nice letter and being accommodating with their move out times is irrelevant to the round number argument. The story of bidding 701k is clearly in the realm of "all else being equal", nudging the price up a relatively insignificant amount can have a significant effect.
The reason someone would accept a slightly lower bid for a house is the funding source is easier/more likely to go though. Nothing to do with the roundness of the bid.
That's assuming the $699k bid isn't entirely fictitious, which it probably is. Both agents have an incentive to make the buyer feel good about the transaction and not like they overpaid when they did.
haha, I wonder who's analyzed that game formally. feels a bit like the 2/3 game with flipped signs (https://en.wikipedia.org/wiki/Guess_2/3_of_the_average). for real numbers, the unique Nash equilibrium is 0, for finite precision numbers (which we're effectively dealing with in reality), the set of Nash equilibria is a bit more interesting.
but of course, Nash equilibria don't always line up well with human behaviour. for the 2/3 game there's empirical work showing that the best strategy against inexperienced players is betting somewhere around 20 iirc. would be interesting if there are papers that would give a similar rule of thumb how much of a "premium" you should offer over the nearest sensible round number
Does it? The point of 699 is to get the highest price possible while hiding the most-significant digit. The opposite of that would be signalling a high most-significant digit while giving as little as possible, which would be 700. 701 just kind of looks like an esoteric joke.
Every time I negotiate a job offer I use something like "two hundred and sixty two thousand and seven hundred dollars as my final figure" or "You'd need to increase that compensation by at least nineteen thousand four hundred dollars."
The precise number indicates confidence in my research and it gets past the other person's resistance point. They focus on the weird number rather the actual round amount. "And four hundred dollars? laughs I'm sure we can do that."
This is also a stronger negotiation tactic than asking for the whole amount. They offer 180k but you really want 210k? "To make me feel comfortable I'd need to see that number adjusted by thirty four thousand and six hundred dollars."
I am on the fence about numbers that are alliterative. They sound good, but they let people latch on to the sound which you don't want. You want them focused on the smaller number and get them to say "yes" to that, because then their brain won't let them say "no" after they've thought about it. In their mind, they are committed to that course of action then.
Also works for buying anything that you have to haggle over, like antiques, like the glass fronted antique cabinets we want. Four of them. $11,200 in total according to the ticket price. "Would you be willing to throw in all four for $8,760?" Slaps hand on desk as I say the final number. Sold! Lowest they could go was $10,500 just moments before.
A recent study shows that made up statistics are more believable if you use a very precise number. And emphasize the word "point."
Another study I read some years ago that I can probably never find again, but I am sure you are already aware of because you seem interested in this sort of thing, showed that by quoting the p value as less than 0.1% added unsubstantiated authority to the numbers.
Anecdotally though I prefer putting the statement about the p value before the statistical number.
Some guys out of Harvard, for their final year thesis that got some massive government grant demonstrated that bequeathing knowledge on the other person in the form of positive attributes, such as already having read a study, increased the chance that your statements would be believed. Especially if you use mirroring and nod as you are saying it so that they nod, and thereby agree, along with you.
Also, throwing in the fact that you personally disagree with the study you read, or point out that you think the methodology employed had some flaws, or that the results were not as conclusive as the authors claim, adds even more authority to your citing of the study.
> Another study I read some years ago ... I am sure you are already aware of because you seem interested in this sort of thing,
> demonstrated that bequeathing knowledge on the other person in the form of positive attributes, such as already having read a study, increased the chance that your statements would be believed
Surely you read the study? I admit it was a bit obtuse in its conclusions, but you have to agree, yes, their methodology was sound. Just look at the p value!
You can laugh at it, but this stuff actually works.
I want thirty-two-thousand and nine-hundred dollars.
I want thirty-four-thousand and one-hundred dollars.
The human brain is good at picking up on alliteration, you don't want them focusing on the alliterative number, you want them focused on the smaller "hundred dollar" number.
Unless your hundred dollar number is alliterative. I want thirty-four-thousand and twenty-two dollars. But generally I only use that when buying antiques.
In the early 2000's I was planning to buy a specific car. The salesman told me not to even think about for getting it under $20k. I came back the next day and told a different sales guy that I wanted the car for $16,750. He came back from the manager's room after a minute or so and said "lets do the paperwork".
I always wondered what part of my tactic worked the best... I wasn't sure if it was setting the oddly specific price or my terseness or maybe both.
Car dealerships are a black box; feel like so much depends on timing and where they are with their sales numbers for the month.
I tried to lease a car last year and after some research knew what was a fair price for a well stocked model; when I suggested a range one sales manager laughed at me.
I emailed a finance manager at a different dealership with exactly what I wanted and told him I could get all of the paperwork done in the next hour if it was a good fit. They agreed and dropped the car off in my driveway a few days later.
That's just a car dealership. They're not necessarily out to screw you, but they are trying to make as much money as they can, so you can't (and you didn't) let yourself get pushed around. The first salesman thought you would buy at $19-20k, and the second one didn't (or he just wanted the sale, or his boss told him to just get rid of the car, or he wanted to scalp the sale from the first guy, etc).
I've personally had more success in salary negotiation with using oddball numbers. I think the presumption on the managers side is either 1) I have a specific offer from another potential employer or 2) I've calculated to the dollar how much I think the job switch is worth. (The latter is usually true, but with large error bounds).
I wonder if the second salesman assumed you had already shopped around and found a car of similar price to your offer.
The car was a Honda Insight... the original one from 2001, so there was nothing else like it. I think they probably felt only select customers were going to be interested in that niche car and that I had probably done my research so best to just accept and get rid of this weird inventory.
I'm car shopping now but it's the worst time to get one. My wife's car is dying so we have no choice.
My friend who's family runs a dealership says that just getting MSRP is good right now. In my negotiations I got MSRP plus the stupid dealer installed "options" which apparently are mandatory now. They were asking $34,000 out the door total price and I got them to knock off $2000.
Did I get a good deal? Who knows? I need a car and I'm getting it.
"Good" is such a relative term right now. It's really more of a "You didn't get screwed." Everyone is paying dealer options unless they're buying one of the few cars that isn't selling. Same with MSRP if not MSRP + Dealership Owner's Next Vacation markup.
I found buying new cars is an excellent waste of money. Young cars repossessed or returned early from a lease are good value, as are cars that are about 5 years old with a hair over 100K miles on them. That psychological 100K is enough to knock a good bit off the value.
This will be the first time in my life getting a new car. I usually go for used, but in this market, one or two year old cars are not much cheaper than new ones. So new it is.
I have to admit, I'm looking forward to the new gadgets like automatic lane centering.
This advice is also part of the book "Never split the difference" by Christopher Voss, a highly recommended book for anyone looking to improve their negotiation skills.
Another thing in that book that's helped me is the suggestion to make your first bid 65 % of the maximum price you're ready to offer. Second bid 85 %, then 95 %, then your maximum offer.
It's not that these numbers are magical in any way, it's just that for me it's convenient to have a rule ready so I don't have to expend mental energy on what numbers to say, and I can instead use that energy on coming up with how to present them.
Knowing the steps I'll take to the final offer ahead of time also makes me slightly more comfortable entering such a low bid to start out with.
I thought the book was great! It's also the only book on negotiation that I've ever read (aside from Art of the Deal out of curiosity, which isn't actually about negotiations at all!), so take my views with a grain of salt.
If you ignore the stuff your linked comments complain about, which is largely him having an obnoxious writing style and literal too-cool-for-(Harvard)-school attitude (them nerds don't know nothin'!), I found tons of the actual content immediately applicable with lots of return.
The thing I absolutely loved about the book was shifting your mindset away from negotiations being these big scary stressful standoffs with winners and losers, and towards them being lighthearted, possibly even fun(!) shared problem solving sessions. That mental shift, and having a box of tools to use, makes navigating tricky situations so much easier.
It also make me look forward to previously stressful situations. For instance, I recently bought a new car, which is a process I usually loathe. However, using all the tricks from the book, I was able to negotiate down a crazy amount off our car with the main approach being the "how can I do X?" from the book. There was some back and forth, some huffing and puffing about how it couldn't be done ("we're already taking a loss on this!"), but eventually, after numerous showy checks with the management, we agreed on a price. I legit had a blast the whole time cause the mental state the entire time was "can we solve this problem together?"
It reminds me of "How to Measure Anything" by Douglas Hubbard [1]
I read "How to Measure Anything in Cybersecurity Risk" but the relevant concepts are from his original book:
- every measurement is an approximation
- you can determine a more accurate valuation (or probability) by thinking in terms of bets
The book isn't primarily about negotiating, but it is about estimating based on incomplete information, which applies to all negotiations. Avoiding a round number doesn't need to be arbitrary. By calibrating your estimation process you can come up with a more precise number, which can also boost your confidence.
The result is both having a more specific valuation in mind, and being more comfortable with the outcome regardless of whether the deal worked for fell apart.
why would you come up with some to-the-$1,000 asking price in a salary negotiation rather than just asking for 30% more than you'd be okay with?
i know he has another version where at some point in the negotiation (rather than the beginning), you whip out some very precise number, but that would immediately strike me as a psychological play rather than the honesty/thoughtfulness it's designed to convey.
in a different situation it's certainly more effective, like when requesting a budget/expense for a specific project, since it signals you've done the math and not just throwing inflated approximations.
I think the core ethos of the book is every negotiation is different and so each tip/technique is just that - a tip/technique you can add to your tool belt and use when the context lends itself to it.
The book also mentions anchoring should usually be avoided in negotiations and instead it recommends you focus on the non monetary value points each party can exchange.
There is actually a section on negotiating salary and IIRC it recommends you provide a range where the bottom of the range is where you are hoping to land.
So you are correct - I would never say in a salary negotiation that I need an exact dollar amount as it might make me love petty unless I prefaced it with 'I have a family to feed and a roof to put over our heads'.
I was able to successfully navigate tricky negotiation situations using his advice, but salary increases were never a part of it. I believe salary increases should reflect professional skills and not negotiation skills, and I avoid companies which reward negotiation skills with higher salary.
I have always used the "imprecise offer" somewhere in the middle, and it usually worked out great.
I can tell you that I have worked at several companies, and am currently working on another company, where negotiation skills do not determine your salary.
Once upon a time the company I worked for had a client, a private company that we provided business services. Lets say we provided 5 different services for this client and had been doing so for several years and our client was quite satisfied with our services. The client was acquired by a PE firm and one of the first things that the acquiring PE firm did was to get all their vendors to bid in a realtime reverse auction. It was a standard process that the PE firm executed on all their portfolio companies post-acq.
Of the 5 services that we provided to the client, there was one service that was very demanding. Suffice to say, it took us several years to get it off the ground and stabilize it. All that knowledge and experience made us a valuable extension of the client. We both had the battle scars. This service was only 10% of the total billing from this client, but very high maintenance, highly visible and operationally very challenging.
When it came to the reverse auction, we dropped our price on this service marginally and held our price on all other services.
A feature of the realtime reverse auction was that we would know our rank amongst competitive bidders on where our bid stood. So, it was nerve-wracking to know that we are not the L1 bid.
We retained all our services at the pre-bid volume levels at the conclusion of the reverse auction and continued to grow this client account for another 5+ years. While this is a single anecdote and may not apply in all scenarios, complex bids don't always come down to price.
There is a confounding variable (omitted variable bias) here that could explain the entire thing, namely, those who used precise numbers likely ACTUALLY DID use a model and/or more quantitative analysis to determine that price.
Similarly, those who chose hole number prices likely did NOT use a model to determine that exact price (as the odds of a model resulting in a whole number price is extremely unlikely).
Thus, you cannot disentangle the effects of the precise bidders actually being more quantitative from the perception of them being more quantitative by the seller.
To properly disentangle this, you would need an experiment (or potentially quasi-experiment) where you randomize either adding some noise to the bid for some bids and rounding other bids to whole dollar amounts.
Using a model is risky, because there are tons of things you have to price.
Is it noisy outside? Is it warm in the winter? summer? Does sunlight pose problems (too much? not enough?) What taxes are there? Is there an HOA? Is the town growing? Is it in a walkable neighborhood? What amenities are nearby? What color is the counter?
Insufficient models was the bane of Zillow, which paid for it dearly.
The same thing is true with lists (listicles) of principles or rules that are even (or lucky) numbers. If somebody is advocating 5, 7, 10, or 20 principles for doing something, I assume at best that they added or dropped marginal ones to get the round number, and at worst that they just had a remit to do 10 rules for something and were just winging it.
The funny thing is that the name 37 signals comes from a count of the signals from space have unexplained origins. So they picked their name long before they came up with that list that just happens to fit. (With one extra by starting at 0)
I work in a field where we are negotiating over price daily. We often are using "weird" numbers because we know it will push our price just over a competitors, and because the sellers will find our number psychologically "interesting" over those competitors. We also make sure our escalation numbers are not "normal" for the same basic reasons. It has worked well for me, though I'm not sure it would make as much of a difference if my competitors were the kind of people who read articles on hbs.edu.
This reminds me of a story of Mount Everest - apparently the people who did the first measurement had it come in at exactly 29,000 feet - so they said 29,002 to make it sound like they weren't making it up. Official measurement now is 29,032 feet.
>That said, he warns that a bid too precise may make the bidder look suspicious, or even ridiculous, to the recipient. Bidding $1.03 million for a house is one thing. Bidding $1,033,235.83 is another.
>If a bid is too precise, it may strike as strategic to the recipient, rather than being driven by superior information,” Keloharju says. “This may lead the recipient to rethink whether the bid is really informed.”
So I think $153k is an ok level of precision. $153,900 is starting to be “too precise”. $150k is definitely too round. It’s all a personal judgement call on how precise one should go but I think it’s easy to see what is too extreme (with cents in it in this case).
My old boss loved to calculate our salaries (increases always in percentages) so the actual dollar amount would contain our birthday or be $123456 or whatever.
Looks like you were too late to convince Kubernetes to deviate from semantic versioning and instead move to Knuth versioning with the version getting asymptotically closer and closer to 100/9^2.
His reasoning was 5% is just as arbitrary as 5.02% or whatever he would do. Also it really pissed off finance, which you rarely get to do with impunity. I miss him. My new boss is more concerned with my haircut and beard than anything else.
Not with that exact number, but on my last job change my demand was equally precise. Although we reached an agreement, my new boss said that this was "an oddly specific number" and she'd never experienced that before.
Did you have a particular reason for requesting that number? Or just a bargaining tactic. Would you have been ok if they just rounded it to a clean number?
Not to the penny, but usually to a non-normative hundred. So maybe something like $153,800 instead of $150k. That has worked surprisingly well for me (someone who didn't know how to negotiate well early in my career and it probably set me back quite a bit).
Not quite,but after reading about this effect years ago I started asking for $153,000 instead of $150,000 or $155,000. I can never know for sure that this is the reason I got what I asked for, but I've always gotten what I asked for.
I did something similar when selling an item on craigslist. I was having trouble with lowballers and flakes, so I relisted the item but gave it a weirdly specific price. Something like $347. Maybe it was dumb luck, but I had a buyer come pick it up a few hours later and they didn't try to negotiate down the price at all.
Could've just been a coincidence. But it did get their attention, for sure, because after they gave me the money, they asked why I was so specific on the price. Got an appreciative chuckle when I told them the truth.
That's funny because when buying things from Craigslist I try to round the price to an even number since the transaction will always be cash and few people have enough small bills to make change.
For instance if the asking is $125, I'll offer $120 since I don't want to find a $5 bill or make the person find change for the extra $20 bill I'd have to use. I've even rounded up a few times to make it easy, though some people have been so insistent that they even resorted to giving me quarters.
Yeah, that makes sense. If they'd have offered me a round number anywhere near my asking price I'd have just said yes, for much the same convenience reason you cited. But in this particular instance they had Venmo so just paid me the exact amount.
This is one of the key ideas behind the book Never Split the Difference by Chris Voss [1]. I found the book quite enlightening if you peek through all the hostage negotiation stories.
There was similar thinking in retail not so long ago when prices started to change from something like 3.99 to 3.77, for example. I don't see this so much now which suggests it didn't work out as expected?
Sometimes shops use the low order bits to encode metadata, e.g. “this is the 20% off price” or “this is ineligible for the sale (discount) going on now”.
I was at a craft fair in Tennessee once long ago. People were selling hand-turned bowls, fountain pens, textiles, pottery, etc. There was one seller whose products were quite different: bowls and things roughly hewn out of wood with the bark on and such. I think he styled himself as, and perhaps was, an Appalachian mountain man from eastern Tennessee (this was in Nashville, which is a bit like Las Vegas). I wasn't in the market for what he was selling, or really anything, but another oddity of his goods was the precision of their prices: $41.13 or $15.02 and so forth. Everything else had a price that ended in 0, 5, or 9, and generally it was a number of dollars with no cents, maybe just two significant digits. This gave me the impression he had very exact knowledge of his own costs and profit margin but very little sense of the pricing customs of craft fairs, or really pricing in general. Anyway, this is just an anecdote. His pricing didn't seem to be making him more prosperous, but he is one of the few things I remember from that day.
Maybe the prices were calculated to make post-sales-tax amounts round numbers? That's been the case when I've seen weirdly precise store pricing in the past.
Some retailers in Canada use the two penny/cent digits as a code. I.e. Something like.99 is regular price,.77 is manager's special,.88 is corporate sale.
This happens in the US as well from what I understand and I always found it an interesting testament to margin size of the product when you're selling something at a mass scald and can afford shaving 10 or 20 cents off the product price point, overloading the value to codify it internally.
Seems like there are cheaper ways, but maybe the price cuts back on secondary labeling or sell association, ultimately saveing personnel time, which ultimately costs less than those expenses.
ASDA (subsidiary of Wal-Mart) fuel stations in the UK always have the fuel price ending in .8 (e.g. 175.8p per litre) while pretty much EVERY other fuel station always has prices ending in .9.
It gives a feeling that they're slightly cheaper than the competition, I think. Even if the more significant digit is more expensive sometimes, people don't remember that part as much because it varies from day to day.
And, once the race to the bottom reaches .0, the petrol station operator that stuck to .9 is back in the lead, again regardless of the significant digits! It would be a bit of a retail version of the Shepard tone: https://en.wikipedia.org/wiki/Shepard_tone
I assumed they meant a race to the bottom in terms of decimal digits only. Another petrol station could price it at 175.7, or maybe even 176.7 if the illusion of being cheaper than ASDA still works.
I cannot find the reference right now, but I read somewhere that when people are on vacation they prefer round prices so they don't have to count change. So, if you are running a gift shop in some popular tourist destination pricing something $5 is better than pricing it $4.95.
It seems like this is at least slightly backwards in reasoning.
I think it has less to do with something sounding more precise than it does with the fact that, in the real world, actual costs are only rarely a round number. As such, if there's a psychological association of non-round numbers sounding more precise, it's because non-round numbers are actually much more common. This means if you provide a round number bid, you are in reality more likely to have given a value that is incorrect.
Tangential, but it bothers me that the technical definition of "precision" is often at odds with its common usage.
Someone who is very precise in their measurements and measures Mount Everest to be 29,000 ft has a figure that is less "precise" than that of someone who is sloppy and arrives at 29,001 ft (though both are, of course, less precise than the person who comes up with 29,000.482712...).
I hate these hypotheticals on negotiations. They don’t work unless you come across a “rational” player and the world is full of irrational people. For example, one lowish starter bid could cut you out of the whole process. Now what? You followed a stupid MBA advice and you shot yourself in the foot. Great job!
This strategy works because people are irrational. The round number vs. not round number are not that different, but they are perceived differently b/c we're all a bit irrational.
Pricing is a tricky process of course, but you also shouldn't be over paying or under charging if selling. It's perfectly ok to get cut out of the process in those cases.
I personally think it's rational to perceive a round number and a precise number differently. I suggest the problem isn't that we're all a bit irrational, but that we try to apply reason to an irrational process.
You have to be willing to walk away to get a good deal. If you’re not willing or can’t take the risk then these strategies aren’t going to be in your interest
Anecdata: I bid 90% of asking price on a house a month ago. Owner got offended (as I was told by my agent) and didn't counter. He then lowered the asking price to 93% of the original. Still didn't counter even though his new asking price wasn't far from what I had offered initially. House is now pending.
I think this idea of a seller being "offended" is far more a fiction in a buyer's mind than actual reality. Think about when you are selling something. Does a too low initial offer offend you and make you unable to evaluate a more reasonable subsequent offer by that person?
related phenom: whenever I see something that is retail priced at $X.99 I can assume that price was not driven entirely by organic/natural/production/COB input factors, but rather a psychological one. and thus they are either overcharging or undercharging.
When I would do estimates for clients I’d regularly say something along the lines of “devil’s in the details but this job sounds like it’s in the $5k-$7.5K range.” Then if they still wanted to play ball, I’d send an actual quote and contract, which usually was more precise (e.g. total of $7250.00 or whatever).
Now when it came to grant writing, I was definitely a little more prone to trying to make the numbers look specific out the gate. “I need $10,000” sounds like a gut number regardless of context, so in a case that really was the estimate (it happens!) I’d say “$9,850” or something. Usually a 10% misc/“the unexpected” line item took care of it though.
The thing I am curious about in [0] is that they report the bid price per share, and not (unless I missed it) the asking price. I don't know how M&A "works". If you and I are both estimating the value of a good, if our estimates are close it's one thing and if they are far apart it's another. Are rounders losing because their estimates are less accurate, relative their counterparty's?
[0] https://www.hbs.edu/ris/Publication%20Files/16-058_27d73983-...