Why It Pays to Be Vague When Negotiating Prices

In negotiating, is a more precise opening offer always better? It might be — but it depends on the experience level of the person with whom you're negotiating, a recent study from Germany found.

In the study, researchers showed that increasing the precision of an opening offer improved a person's negotiations with amateurs, but could actually backfire on negotiations with experts.

In most situations, precision can influence social perceptions during a negotiation, suggesting more confidence and competence, the researchers wrote in their study, which was published in October in the journal Psychological Science. People tend to assume that those they're communicating with provide exactly the right amount of information needed — not any more, and not any less, the researchers said. Thus, people may intuitively feel that a more precise offer reflects more knowledge about the value of what is being bought or sold, the investigators said. [7 Ways to Reduce Job Stress]

However, too much precision can hurt with experts, because they may assume that the overly precise number reflects a lack of competence, the study found.

To explore the effects of precision on negotiating, the researchers conducted five experiments that included 1,320 experts and amateurs in real estate, jewelry, car and human-resources negotiations.

For example, in one of the experiments, the researchers provided 230 amateurs and 223 real estate agents (the experts) in Germany with a detailed real-estate listing that included pictures, floor plans and other relevant information. The study participants were then given an opening offer with varying degrees of precision, ranging from 979,000 euros or 981,000 euros in the least-precise condition up to 978,781.63 euros or 981,218.37 euros in the most-precise condition.

When asked to make a counteroffer and state the highest price they were willing to pay for the house, amateurs were almost always willing to pay more when the offer was more precise. In other words, they made higher counteroffers and were willing to pay more for the house as precision increased.

Experts, however, reacted differently. While increased precision in an offer helped in negotiations up to a point, researchers saw a "U shape" in experts' willingness to pay and in the amount of their counteroffers. If the offer became tooprecise, then this precision turned into a disadvantage, lowering the experts' view of the value of the home and the competence of the person with whom they were negotiating.

Real-world implications

The findings suggest that negotiators analyze their counterpart's expertise before making a precise offer, said lead-study author David Loschelder, an assistant professor of economic psychology at Leuphana University Lüneburg in Germany.

"Moderate precision is always safe and very likely effective," Loschelder told Live Science.

The study did have limitations, however.

For example, the transactions in the study were not real; rather, they were conducted in a laboratory setting, Loschelder noted. People might have said they were willing to pay X amount, but in reality, the number might be different, he said.

Despite such limitations, Michael Wheeler, a professor of management practice at Harvard Business School, who was not involved in the study, said that he was "pretty well-persuaded that if the authors can get these effects here, they are applicable to the real world."

The power of the study comes from its very different findings for the effects of precision on experts versus on amateurs, said Wheeler, who is also involved with Harvard Business School's online learning initiative, HBX.

"That may be very subversive in terms of negotiation research," Wheeler told Live Science, noting that most research on negotiation is performed in labs using amateurs, or participants with little negotiation experience. The recent study could raise a "yellow caution flag" when examining other research done with subjects who were entirely inexperienced negotiators, he added.

The study has practical, real-world implications as well.

"One takeaway is avoid being too clever by half," Wheeler said. "If you think a precise number is going to be valuable, don't overdo it, particularly if you're dealing with somebody who is experienced in that particular industry or realm."

Originally published on Live Science.