Asymmetric Dominance and its Impact on Mortgage Default Deficiency Collection Efforts

20 Pages Posted: 14 Nov 2018

Date Written: Winter 2018

Abstract

The surge in mortgage default rates during the financial crisis has led to a corresponding dramatic increase in the type and number of firms who are entering the deficiency collection space. As such, we study the methods by which hedge funds and private equity collection firms can more profitably unwind this toxic debt. Specifically, we employ the theory of Asymmetric Dominance and find support that introducing a similar payment amount (i.e., a “decoy”) significantly induces borrowers to change their preference from one that is optimal for them to one that is suboptimal. We then employ the Left‐Most Digit effect in a new manner and demonstrate a statistically significant ability to mitigate the Asymmetric Dominance effect. Finally, we empirically find that Caucasians, males, and those of a greater net worth are more adept at avoiding violating the Independence of Irrelevant Alternatives axiom.

Suggested Citation

Seiler, Michael, Asymmetric Dominance and its Impact on Mortgage Default Deficiency Collection Efforts (Winter 2018). Real Estate Economics, Vol. 46, Issue 4, pp. 971-990, 2018, Available at SSRN: https://ssrn.com/abstract=3283256 or http://dx.doi.org/10.1111/1540-6229.12176

Michael Seiler (Contact Author)

College of William and Mary ( email )

P.O. Box 8795
Williamsburg, VA 23185
United States

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