Betting on the House: Subjective Expectations and Market Choices
117 Pages Posted: 22 May 2020 Last revised: 18 Aug 2022
Date Written: April 25, 2020
Home price expectations play a central role in macroeconomics and ﬁnance. However, there is little direct evidence on how these expectations aﬀect market choices. We provide the ﬁrst causal evidence based on a large-scale, high-stakes, and naturally occurring ﬁeld experiment in the United States. We mailed letters with information on trends in home prices to 57,910 homeowners who had listed their homes on the market. Collectively, these homes were worth $34 billion. We randomized the information contained in the mailing to create non-deceptive, exogenous variation in the subjects home price expectations. We then used rich administrative data to measure the eﬀects of these information shocks on the subjects’ market choices. We found that, consistent with economic theory, higher home price expectations caused a reduction in the probability of selling the home. These eﬀects were highly statistically signiﬁcant, economically large in magnitude, and robust to a number of sharp checks. Our results indicated that market choices were highly elastic to expectations: a 1 percentage point increase in home price expectations caused a 2.63 percentage point reduction in the probability of selling the property within 12 weeks.
Keywords: expectations, experiment, housing market, information
JEL Classification: C81, C93, D83, D84, R31
Suggested Citation: Suggested Citation