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Focal points and bargaining in housing markets

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  • Pope, Devin G.
  • Pope, Jaren C.
  • Sydnor, Justin R.

Abstract

Are focal points important for determining the outcome of high-stakes negotiations? We investigate this question by examining the role that round numbers play as focal points in negotiations in the housing market. Using a large dataset on home transactions in the U.S., we document sharp spikes in the distribution of final negotiated house prices at round numbers, especially those divisible by $50,000. The patterns cannot be easily explained by simple stories of convenience rounding or by list prices. We conclude that round numbers can serve as focal points, even in settings with very high stakes.

Suggested Citation

  • Pope, Devin G. & Pope, Jaren C. & Sydnor, Justin R., 2015. "Focal points and bargaining in housing markets," Games and Economic Behavior, Elsevier, vol. 93(C), pages 89-107.
    • Handle: RePEc:eee:gamebe:v:93:y:2015:i:c:p:89-107
    DOI: 10.1016/j.geb.2015.07.002
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    6. Schmidt, Robert J., 2019. "Identifying the Ranking of Focal Points in Coordination Games on the Individual Level," Working Papers 0660, University of Heidelberg, Department of Economics.
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    14. Stephen L. Ross & Tingyu Zhou, 2020. "Documenting Loss Aversion using Evidence of Round Number Bias," Working papers 2020-17, University of Connecticut, Department of Economics.
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    More about this item

    Keywords

    Focal points; Bargaining; Housing prices;
    All these keywords.

    JEL classification:

    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory

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