DP2813 Loss Aversion and Seller Behaviour: Evidence from the Housing Market
|Author(s):||David Genesove, Christopher Mayer|
|Publication Date:||May 2001|
|Keyword(s):||Housing Markets, Loss Aversion, Prospect Theory|
|Programme Areas:||Industrial Organization|
|Link to this Page:||www.cepr.org/active/publications/discussion_papers/dp.php?dpno=2813|
Data from downtown Boston in the 1990s show that loss aversion determines seller behaviour in the housing market. Condominium owners subject to nominal losses: (1) set higher asking prices of 25-35% of the difference between the property’s expected selling price and their original purchase price; (2) attain higher selling prices of 3-18% of that difference; and (3) exhibit a much lower sale hazard than other sellers. The list price results are twice as large for owner-occupants as for investors, but hold for both. These findings are consistent with prospect theory and help explain the positive price-volume correlation in real estate markets.