Focal points and bargaining in housing markets |
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| Affiliation: | 1. Booth School of Business, University of Chicago, 5807 S Woodlawn Ave., Room 310, Chicago, IL 60637, United States;2. Department of Economics, Brigham Young University, 180 Faculty Office Building, Provo, UT 84602-2363, United States;3. Wisconsin School of Business, University of Wisconsin-Madison, 975 University Ave., 5287 Grainger Hall, Madison, WI 53706, United States;4. NBER, United States;1. Columbia Business School, Columbia University, United States;2. Leuphana University of Luneburg, Germany;3. ESMT Berlin, Germany;1. Portsmouth Business School, University of Portsmouth, Richmond Building, Portland Street, Portsmouth PO1 3DE, United Kingdom;2. School of Economics and Centre for Behavioural and Experimental Social Science, University of East Anglia, Norwich NR47TJ, United Kingdom;3. Lehrstuhl für Makroökonomik, Ruhr-Universität Bochum, 44780 Bochum, Germany;1. Department of Management and Organization, Stern School of Business, New York University, 44 West 4th St., New York, NY 10012, United States;2. Department of Management and Organizations, Eller College of Management, University of Arizona, 1130 E. Helen St., Tucson, AZ 85721, United States;3. Department of Management, Norm Brodsky College of Business, Rider University, 2083 Lawrenceville Rd., Lawrenceville, NJ 08648, United States |
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| 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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| Keywords: | Focal points Bargaining Housing prices |
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