New Lawyer Tip of the Week: Bargaining Power

A friend of mine passed along this article about the psychology of negotiating or bargaining for your salary.  I find this so interesting.  Using our voice or defining our value is often a very difficult thing to do – and it is particularly difficult in a salary-negotiation session.  This is in part because we feel we are at the mercy of the employer and in part because we are not sure of our worth.  I think the solution here is embedded in the reasoning of this article – not only should you come up with a precise number because this will result in a higher salary overall, but you should research the going rate or the proper salary as this will give you a powerful initial marker.

The article is pasted in full below, originally published in Marginal Revolution:

Do Not Bargain With Round Numbers

When negotiating for a salary, most of us reach for a nice, round number like $65,000. Or $90,000. Or $120,000.

But, by favoring all those zeros, we may be missing an opportunity to score a better deal, according to a new paper from researchers at Columbia Business School. They found that using more precise numbers in an initial request—or anchor, as it is known in negotiating parlance—generally results in a higher final settlement.

Precision conveys the impression that the job candidate has done extensive research and deeply understands the market for his services, said Malia Mason, the lead author of the paper and a professor at Columbia who teaches a course on managerial negotiations. When people use round numbers, by contrast, they’re conveying that they have only a general sense of the market rate for their skills.

…In one experiment, Ms. Mason and her team had 130 sets of people negotiate the price of a used car. When buyers suggested a round anchor, they ended up paying an average of $2,963 more than their initial offer. But buyers who suggested a precise number for a first offer paid only $2,256 more, on average, than that number in the end.

When it comes to negotiating salary, Ms. Mason’s research indicates that a job candidate asking for $63,500 might receive a counteroffer of $62,000, while the request for $65,000 is more likely to yield a counteroffer of, say, $60,000, as the hiring manager assumes the candidate has thrown out a broad ballpark estimate.

By Tyler Cowen


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