Loss Aversion and Focal Point Bias: Empirical Evidence from Housing Markets

60 Pages Posted: 13 Apr 2022 Last revised: 25 Oct 2023

See all articles by Stephen L. Ross

Stephen L. Ross

University of Connecticut - Department of Economics

Tingyu Zhou

Florida State University

Multiple version iconThere are 2 versions of this paper

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

Ross, Stephen L. and Zhou, Tingyu, Loss Aversion and Focal Point Bias: Empirical Evidence from Housing Markets (March 21, 2022). Available at SSRN: https://ssrn.com/abstract=4072887 or http://dx.doi.org/10.2139/ssrn.4072887

Stephen L. Ross

University of Connecticut - Department of Economics ( email )

365 Fairfield Way, U-1063
Storrs, CT 06269-1063
United States

Tingyu Zhou (Contact Author)

Florida State University ( email )

821 Academic Way
Tallahassee, FL 32306
United States

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