Working Paper: NBER ID: w21285
Authors: Matthew Backus; Tom Blake; Steven Tadelis
Abstract: Can sellers credibly signal their private information to reduce frictions in negotiations? Guided by a simple cheap-talk model, we posit that impatient sellers use round numbers to signal their willingness to cut prices in order to sell faster, and test its implications using millions of online bargaining interactions. Items listed at multiples of $100 receive offers that are 5% - 8% lower but that arrive 6 - 11 days sooner than listings at neighboring "precise" values, and are 3% - 5% more likely to sell. Similar patterns in real estate transactions suggest that round-number signaling plays a broader role in negotiations.
Keywords: cheap talk; round numbers; negotiation; signaling; bargaining
JEL Codes: C78; D82; D83; M21
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| round number pricing (D41) | lower initial offers (D44) |
| round number pricing (D41) | final sale prices (D44) |
| round number pricing (D41) | likelihood of sale (M31) |
| round number pricing (D41) | timing of offers (C41) |
| round number pricing (D41) | seller eagerness (D44) |
| seller eagerness (D44) | faster sales (L81) |
| precise listing prices (D41) | aggressive counteroffers (C78) |
| precise listing prices (D41) | likelihood of acceptance (C52) |