Hyperbolic Discounting, Reference Dependence and Its Implications for the Housing Market

37 Pages Posted: 28 Aug 2012

See all articles by Hua Sun

Hua Sun

Iowa State University

Michael Seiler

College of William and Mary - Finance

Date Written: August 26, 2012

Abstract

The influential work of Genesove and Mayer (2001) uses loss aversion theory to explain several puzzling behaviors in the housing market. In this study, we present an alternative theory, which does not require an asymmetric value function, to observe the same “loss aversion” behavior. Specifically, this paper presents a model in which a reference-dependent home seller has a symmetric value function, but faces an inter-temporal decision problem. Furthermore, the framework presented in this paper also helps explain the positive price-volume relationship and price dispersion effect, two observations that are well-documented in the housing market.

Keywords: Hyperbolic Discounting, Loss Aversion, Repeat-Sales Index

JEL Classification: D01, R21, R20

Suggested Citation

Sun, Hua and Seiler, Michael, Hyperbolic Discounting, Reference Dependence and Its Implications for the Housing Market (August 26, 2012). Journal of Real Estate Research, 2012. Available at SSRN: https://ssrn.com/abstract=2136608

Hua Sun

Iowa State University ( email )

Ames, IA 50011-2063
United States
1-5152947514 (Phone)

Michael Seiler (Contact Author)

College of William and Mary - Finance ( email )

VA
United States

HOME PAGE: http://mason.wm.edu/faculty/directory/seiler_m.php

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