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
JEL(s): L10, R21
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.