Cheap Talk, Round Numbers, and the Economics of Negotiation

Matthew Backus, Tom Blake, Steven Tadelis

NBER Working Paper No. 21285
Issued in June 2015
NBER Program(s):Industrial Organization Program, Productivity, Innovation, and Entrepreneurship Program

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.

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Acknowledgments and Disclosures

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Document Object Identifier (DOI): 10.3386/w21285

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