Comparative Cheap Talk: Evidence from the Housing Market

Abstract

Using real estate transaction data, we provide the first empirical test of the comparative cheap talk model in Chakraborty and Harbaugh (2010), which predicts that a real estate agent can credibly reveal information of a house by making comparative statements that make the house more appealing in some areas but less along others. Consistent with the prediction, we find that comparative statements are associated with a 0.8% price premium, with all else being equal. The premium is larger for houses with more potential buyers, but switches sign and becomes a discount when there are too few buyers.

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