Are the Disabled Less Loss Averse? New Evidence from the Housing Market

Abstract

Empirical findings in physiology and psychology show that disabled persons often develop physical and mental mechanisms to compensate for disabilities. Coping mechanisms may not be limited to the psycho-physiological domain, however, and may extend to economic behavior. Improved economic decision-making could result in better survival prospects among disabled persons in modern, knowledge-based societies. In this study, we test for differences in cognitive bias and economic behavioral heuristics among physically disabled and non-disabled populations. Using unique micro data from an Israeli government natural experiment, we assess loss aversion in home purchase among disabled and non-disabled households. Results of survival analysis indicate that the physically disabled are substantially less loss averse in timing of home purchase. Also, loss aversion attenuates with degree of disability. Research findings provide new evidence suggesting that the compensatory mechanisms of disabled households extend to the economic domain and result in more rationale economic decision-making.

Keywords: loss aversion, housing tenure choice, disabled populations, behavioral economics

JEL Classification: D03, C9, R38