Does Cheap Talk Affect Market Outcomes? Evidence from eBay

Daniel W. Elfenbein, Raymond Fisman and Brian McManus

No 24437, NBER Working Papers from National Bureau of Economic Research, Inc

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.

JEL-codes: D83 K2 L15 M37 (search for similar items in EconPapers)
Date: 2018-03
New Economics Papers: this item is included in nep-exp, nep-law, nep-mkt and nep-pay
Note: IO PR
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Published as Daniel W. Elfenbein & Raymond Fisman & Brian McManus, 2019. "Does Cheap Talk Affect Market Outcomes? Evidence from eBay," American Economic Journal: Applied Economics, vol 11(4), pages 305-326.

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