Up Next

Market-Based Solutions to Vital Economic Issues


Kenan Institute 2024 Grand Challenge: Business Resilience
Market-Based Solutions to Vital Economic Issues
Apr 13, 2023

Do Rounding-Off Heuristics Matter? Evidence from Bilateral Bargaining in the U.S. Housing Market


Using confidential offer-level data on the US housing market, this paper examines the rounding-off heuristics in the bilateral bargaining process. We demonstrate that home sellers and home buyers follow different rounding-off heuristics. While sellers’ list prices cluster more frequently around charm numbers (e.g. 349,999), buyers’ offer prices and negotiated final sales prices cluster at salient round numbers. When sellers use round numbers as initial listing prices, buyers are also more likely to use round numbers as their offer prices and make greater counteroffer adjustments. A round offer price reduces the probability of the offer leading to a successful home purchase. Consistent with the cheap talk hypothesis, a round list price significantly correlates with a lower sales price, more offers received, and less time on the market. Compared with round-price listings, charm-price listings are associated with fewer offers, longer time on the market, and lower sales price, although the latter is used more frequently by sellers. These empirical findings provide novel insights into bilateral bargaining behavior in the U.S. housing market.

Note: Research papers posted on SSRN, including any findings, may differ from the final version chosen for publication in academic journals.  

View Working Paper

You may also be interested in: