Does the Dream of Home Ownership Rest Upon Biased Beliefs? A Test Based on Predicted and Realized Life Satisfaction

35 Pages Posted: 29 Jul 2020 Last revised: 22 Nov 2022

See all articles by Reto Odermatt

Reto Odermatt

University of Basel

Alois Stutzer

University of Basel; IZA Institute of Labor Economics

Abstract

The belief that home ownership makes people happy is probably one of the most widespread intuitive theories of happiness. However, whether it is accurate is an open question. Based on individual panel data, we explore whether home buyers systematically overestimate the life satisfaction associated with living in their privately owned property. To identify potential prediction errors, we compare people's forecasts of their life satisfaction in five years' time with their current realizations. We find that, while moving into a purchased dwelling is associated with higher life satisfaction, people systematically overestimate the long-term satisfaction gain. The misprediction therein is driven by people who follow extrinsically-oriented life goals, highlighting biased beliefs regarding own preferences as a relevant mechanism in the prediction errors.

Keywords: subjective well-being, projection bias, life satisfaction, life goals, housing tenure, home ownership, beliefs, intuitive theories of happiness, utility prediction

JEL Classification: D12, D83, D90, I31, R20

Suggested Citation

Odermatt, Reto and Stutzer, Alois, Does the Dream of Home Ownership Rest Upon Biased Beliefs? A Test Based on Predicted and Realized Life Satisfaction. IZA Discussion Paper No. 13510, Available at SSRN: https://ssrn.com/abstract=3660256

Reto Odermatt (Contact Author)

University of Basel

Alois Stutzer

University of Basel ( email )

Faculty of Business and Economics
Peter Merian-Weg 6
4002 Basel
Switzerland
0041 61 207 3361 (Phone)

HOME PAGE: http://www.wwz.unibas.ch/en/stutzer/

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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