Hyperbolic Discounting, Reference Dependence, and Its Implications for the Housing Market
24 Pages Posted: 21 Mar 2013
The influential work of Genesove and Mayer (2001) uses loss aversion theory to explain several puzzling behaviors in the housing market. In this paper, 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 of the model also helps explain the positive price-volume relationship and price dispersion effect, two observations that are well-documented in the housing market.
Keywords: loss aversion, price-volume relationship, price dispersion
Suggested Citation: Suggested Citation