Does Cheap Talk Affect Market Outcomes? Evidence from Ebay

48 Pages Posted: 26 Mar 2018

See all articles by Daniel W. Elfenbein

Daniel W. Elfenbein

Washington University in St. Louis - John M. Olin Business School

Raymond J. Fisman

National Bureau of Economic Research (NBER); Boston University

Brian McManus

University of North Carolina (UNC) at Chapel Hill - Department of Economics

Date Written: March 2018

Abstract

We study the use of and response to cheap talk by firms and their consumers, focusing on unverifiable promises of charitable donations on eBay. For transactions during March 2005 – May 2006, cheap talk listings have lower sales probabilities but sell at higher prices when they are successful. The negative relationship between cheap talk and sales is concentrated in the months following Hurricane Katrina, a time when both verifiable and unverifiable charity-related listings increased dramatically. Finally, we show that cheap talk sellers have significantly lower quality ratings than sellers who make verifiable donations. Collectively, our results suggest that most buyers (justifiably) avoid cheap talk listings when credible quality signals are available, thus limiting the extent of cheap talk under these conditions.

Suggested Citation

Elfenbein, Daniel W. and Fisman, Raymond and McManus, Brian, Does Cheap Talk Affect Market Outcomes? Evidence from Ebay (March 2018). NBER Working Paper No. w24437. Available at SSRN: https://ssrn.com/abstract=3149290

Daniel W. Elfenbein (Contact Author)

Washington University in St. Louis - John M. Olin Business School ( email )

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Raymond Fisman

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
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Boston University ( email )

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Boston, MA 02215
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Brian McManus

University of North Carolina (UNC) at Chapel Hill - Department of Economics ( email )

Chapel Hill, NC 27599
United States

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