Negotiate in odd numbers

An interesting article in Scientific American called Why Things Cost $19.95 investigates whether or not the common merchant tactic of listing a price as $19.95 rather than $20.00 is really effective. Read a snipit of the article below and learn how this impacts the practice of law.

“Why Things Cost $19.95” Article

There were three scenarios involving different retail prices: one group of buyers was given a price of $5,000, another was given a price of $4,988, and the third was told $5,012. When all the buyers were asked to estimate the wholesale price, those with the $5,000 price tag in their head guessed much lower than those contemplating the more precise retail prices. That is, they moved farther away from the mental anchor. What is more, those who started with the round number as their mental anchor were much more likely to guess a wholesale price that was also in round numbers. The scientists ran this experiment again and again with different scenarios and always got the same result.

Why would this happen? As Janiszewski and Uy explain in the February issue of Psychological Science, people appear to create mental measuring sticks that run in increments away from any opening bid, and the size of the increments depends on the opening bid. That is, if we see a $20 toaster, we might wonder whether it is worth $19 or $18 or $21; we are thinking in round numbers. But if the starting point is $19.95, the mental measuring stick would look different. We might still think it is wrongly priced, but in our minds we are thinking about nickels and dimes instead of dollars, so a fair comeback might be $19.75 or $19.50.

What This Means for The Practice of Law

These results may help a person or this attorney negotiate favorable settlements.  In both formal and informal mediation, there usually comes a point where all the questions of fact have been raised, all the bullets for each side have been fired, all the legal arguments have been made, creative solutions have been suggested, and the negotiations simply come down to each side making numerical offers and counteroffers.  This article suggests, from a legal standpoint, that by using more presise odd numbers in negotiations counter offers will land closer to my original offer.