Comparative Cheap Talk: Evidence from the Housing Market

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.