Is There a Link Between Money Illusion and Homeowners’ Expectations of Housing Prices?

Posted: 31 Aug 2010 Last revised: 26 Oct 2015

See all articles by Lucy F. Ackert

Lucy F. Ackert

Kennesaw State University - Michael J. Coles College of Business

Bryan K. Church

Georgia Institute of Technology - Accounting Area

Narayanan Jayaraman

Georgia Institute of Technology - Scheller College of Business

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Date Written: August 30, 2010

Abstract

Money illusion is a behavioral bias in which a person thinks in terms of nominal rather than real values. This paper reports homeowners’ responses to a survey designed to measure the extent of money illusion as well as homeowners’ expectations regarding home valuations. Our survey respondents suffer from money illusion, yet they have reasonable expectations of home prices. Our analysis did not identify any unique individual characteristic that correlates with homeowners’ choices and suggests that the relationship between money illusion and mispricing is subtle and multi-faceted.

Keywords: housing prices, bubbles, money illusion

JEL Classification: G10, R20

Suggested Citation

Ackert, Lucy F. and Church, Bryan K. and Jayaraman, Narayanan, Is There a Link Between Money Illusion and Homeowners’ Expectations of Housing Prices? (August 30, 2010). Real Estate Economics, Forthcoming, Available at SSRN: https://ssrn.com/abstract=1668865

Lucy F. Ackert (Contact Author)

Kennesaw State University - Michael J. Coles College of Business ( email )

1000 Chastain Road
Department of Economics and Finance
Kennesaw, GA 30144
United States
770-423-6111 (Phone)
770-499-3209 (Fax)

Bryan K. Church

Georgia Institute of Technology - Accounting Area ( email )

800 West Peachtree St.
Atlanta, GA 30308
United States
404-894-3907 (Phone)
404-894-6030 (Fax)

Narayanan Jayaraman

Georgia Institute of Technology - Scheller College of Business ( email )

800 West Peachtree St.
Atlanta, GA 30308
United States
404-894-4389 (Phone)
404-894-6030 (Fax)

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