Loss Aversion and Seller Behaviour: Evidence from the Housing Market

48 Pages Posted: 1 Jun 2001  

David Genesove

Hebrew University of Jerusalem - Department of Economics; Centre for Economic Policy Research (CEPR)

Christopher J. Mayer

Columbia Business School - Finance and Economics; National Bureau of Economic Research (NBER)

Date Written: May 2001

Abstract

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.

Keywords: Housing markets, loss aversion, prospect theory

JEL Classification: L10, R21, R31

Suggested Citation

Genesove, David and Mayer, Christopher J., Loss Aversion and Seller Behaviour: Evidence from the Housing Market (May 2001). CEPR Discussion Paper No. 2813. Available at SSRN: https://ssrn.com/abstract=271702

David Genesove (Contact Author)

Centre for Economic Policy Research (CEPR)

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

Hebrew University of Jerusalem - Department of Economics ( email )

Mount Scopus
Jerusalem, 91905
Israel
+972 2 588 3128 (Phone)
+972 2 581 6071 (Fax)

Christopher J. Mayer

Columbia Business School - Finance and Economics ( email )

3022 Broadway
New York, NY 10027
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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