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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.

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  • 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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    3. 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.
    4. Schmidt, Robert J., 2019. "Identifying the Ranking of Focal Points in Coordination Games on the Individual Level," Working Papers 660, University of Heidelberg, Department of Economics.
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    8. Cherbonnier, Frédéric & Lévêque, Christophe, 2021. "The impact of competition on expert's information disclosure: the case of real estate brokers," TSE Working Papers 21-1255, Toulouse School of Economics (TSE).
    9. Eid, Nourhan & Maltby, Josephine & Talavera, Oleksandr, 2016. "Income Rounding and Loan Performance in the Peer-to-Peer Market," MPRA Paper 72852, University Library of Munich, Germany.
    10. 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.
    11. Schmidt, Robert J., 2019. "Point beauty contest: measuring the distribution of focal points on the individual level," Working Papers 0667, University of Heidelberg, Department of Economics.
    12. Converse, Benjamin A. & Dennis, Patrick J., 2018. "The role of “Prominent Numbers” in open numerical judgment: Strained decision makers choose from a limited set of accessible numbers," Organizational Behavior and Human Decision Processes, Elsevier, vol. 147(C), pages 94-107.
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    15. Joseph Engelberg & Linh Thompson & Jared Williams, 2020. "Stock market anomalies and baseball cards," The Financial Review, Eastern Finance Association, vol. 55(3), pages 461-479, August.

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    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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