Loss Aversion and Focal Point Bias: Empirical Evidence from Housing Markets
60 Pages Posted: 13 Apr 2022 Last revised: 25 Oct 2023
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Loss Aversion and Focal Point Bias: Empirical Evidence from Housing Markets
Loss Aversion and Focal Point Bias: Empirical Evidence from Housing Markets
Date Written: March 21, 2022
Abstract
Most research documenting correlation between behavioral biases use survey or experimental data, often focusing on related biases. We test whether evidence of loss aversion in housing sales prices is stronger among individuals who exhibited focal point tendencies when selecting their mortgage amount at purchase, allowing for market impacts of both behavioral biases in high-stakes contexts. We find a strong positive relationship between the effects of facing a loss on eventual sales prices and whether sellers selected a round mortgage amount during their initial purchase. Further, we show that selecting round mortgage amounts is persistent within borrowers over time.
Keywords: Housing sales, loss aversion, anchoring, mortgage, behavioral bias, round numbers, focal point bias, house prices, sale likelihood
JEL Classification: D91, G21, R21, R31
Suggested Citation: Suggested Citation