Behavioral Analysis of Housing Satisfaction with Relocations: Field Evidence from China

21 Pages Posted: 2 May 2018

See all articles by Jinhai Yan

Jinhai Yan

School of Public Policy

Helen X. H. Bao

University of Cambridge - Department of Land Economy

Date Written: April 1, 2018

Abstract

This paper proposed a theoretical framework based on prospect theory to explain the determinants of housing satisfaction among relocated residents. We test the two most important elements of prospect theory, namely, reference point dependence and loss aversion. For reference point dependence, we investigate the presence of both internal and external reference points; for loss aversion, we test its effect directly by comparing coefficients in loss and gain domains and indirectly by verifying the presence of the endowment effect. Our study area is Xiamen, China, where the recent urbanization frenzy provides a natural experiment setting to reliably test our hypotheses. Our empirical findings provide convincing evidence to support the four hypotheses developed from prospect theory, indicating that prospect theory is a working theory to better understand the motivations and concerns of relocated residents. Policy recommendations are subsequently derived to reduce social conflicts and disharmony caused by urban redevelopment and relocations.

Keywords: behavioural sciences, value function, reference points, loss aversion, endowment effect, social comparisons

JEL Classification: D63, D91, I38, R58

Suggested Citation

Yan, Jinhai and Bao, Helen X. H., Behavioral Analysis of Housing Satisfaction with Relocations: Field Evidence from China (April 1, 2018). Available at SSRN: https://ssrn.com/abstract=3162816 or http://dx.doi.org/10.2139/ssrn.3162816

Jinhai Yan

School of Public Policy ( email )

Xiamen, Fujian 361005
China

Helen X. H. Bao (Contact Author)

University of Cambridge - Department of Land Economy ( email )

19 Silver Street
Cambridge, CB3 9EP
United Kingdom

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