Cooling Auction Fever: Evidence from the Housing Market

87 Pages Posted: 15 Apr 2020 Last revised: 1 Nov 2023

See all articles by Antonio Gargano

Antonio Gargano

University of Houston - C.T. Bauer College of Business

Marco Giacoletti

Marshall School of Business

Date Written: March 25, 2020

Abstract

This paper presents novel evidence of the effects of bidders’ behavioral biases, and
sellers’ strategic pricing decisions, on the outcome of high-stakes auctions. We study laws
introduced in Australia to limit underquoting, which is the practice of listing houses at
prices below sellers’ reservation values. We show that the laws lead to a relative increase
in listing prices, but to a decrease in sales prices and sales probabilities. We use a model
to link these findings to theoretical predictions based on different assumptions on bidders’
rationality. Our results are consistent with underquoting inducing overbidding through
behavioral channels.

Keywords: Auctions, Behavioral Biases, Housing, Listing Prices, Policy Interventions

JEL Classification: D10, D80, G40, R30

Suggested Citation

Gargano, Antonio and Giacoletti, Marco, Cooling Auction Fever: Evidence from the Housing Market (March 25, 2020). Available at SSRN: https://ssrn.com/abstract=3561268 or http://dx.doi.org/10.2139/ssrn.3561268

Antonio Gargano

University of Houston - C.T. Bauer College of Business ( email )

Houston, TX 77204-6021
United States

Marco Giacoletti (Contact Author)

Marshall School of Business ( email )

701 Exposition Blvd
Los Angeles, CA California 90089
United States

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