Anchoring on Historical Round Number Reference Points: Expert Experience Corrects for Pricing Bias while Market Forces Do Not

Abstract: We argue that the anchoring effect of prior sales prices on subsequent prices is discontinuous at round numbers, such that it matters disproportionately whether a previous sales price reached a round-number threshold. Buyers paying a price just below a round number may sacrifice money because they receive disproportionately less when reselling the good. Using data on over 13,000 repeat real estate transactions, we find that home buyers who previously paid just under a $10,000 reference point subsequently list and sell their homes for about 1.3 percent (over $2000) less on average than do buyers selling comparable homes who previously paid at or above a round number threshold. However, we show that while market forces are unlikely to attenuate this effect, highly-experienced professional intermediaries may.

Keywords: Negotiations, Anchoring, Archival

Topic: NEG   |   Format: Full Paper