Working Paper: NBER ID: w24437
Authors: Daniel W. Elfenbein; Raymond Fisman; Brian McManus
Abstract: We study the use of and response to cheap talk by firms and their consumers, focusing on unverifiable promises of charitable donations on eBay. For transactions during March 2005 – May 2006, cheap talk listings have lower sales probabilities but sell at higher prices when they are successful. The negative relationship between cheap talk and sales is concentrated in the months following Hurricane Katrina, a time when both verifiable and unverifiable charity-related listings increased dramatically. Finally, we show that cheap talk sellers have significantly lower quality ratings than sellers who make verifiable donations. Collectively, our results suggest that most buyers (justifiably) avoid cheap talk listings when credible quality signals are available, thus limiting the extent of cheap talk under these conditions.
Keywords: cheap talk; market outcomes; eBay; charitable donations; consumer behavior
JEL Codes: D83; K21; L15; M37
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| UCC listings (Y90) | sales probability (C69) |
| non-charity listings (L31) | sales probability (C69) |
| UCC listings (Y90) | prices (P22) |
| Katrina period (H84) | UCC listings sales probability (D44) |
| GW listings (D50) | sales probability (C69) |