Mistake #37: The Effect of Previously Encountered Prices on Current Housing Demand

25 Pages Posted: 8 May 2006

See all articles by Uri Simonsohn

Uri Simonsohn

Ramon Llull University - ESADE Business School

George Loewenstein

Carnegie Mellon University - Department of Social and Decision Sciences

Abstract

Based on contrast effects studies from psychology, we predicted that movers arriving from more expensive cities would rent pricier apartments than those arriving from cheaper cities. We also predicted that as people stayed in their new city they would get used to the new prices and would readjust their housing expenditures countering the initial impact of previous prices. We found support for both predictions in a sample of 928 movers from the PSID. Alternative explanations based on unobserved wealth and taste, and on imperfect information are ruled out.

Suggested Citation

Simonsohn, Uri and Loewenstein, George F., Mistake #37: The Effect of Previously Encountered Prices on Current Housing Demand. Economic Journal, Vol. 116, No. 508, pp. 175-199, January 2006. Available at SSRN: https://ssrn.com/abstract=878193 or http://dx.doi.org/10.1111/j.1468-0297.2006.01052.x

Uri Simonsohn (Contact Author)

Ramon Llull University - ESADE Business School ( email )

Avinguda de la Torre Blanca, 59
Sant Cugat del Vall├Ęs, 08172
Spain

HOME PAGE: http://urisohn.com

George F. Loewenstein

Carnegie Mellon University - Department of Social and Decision Sciences ( email )

Pittsburgh, PA 15213-3890
United States
412-268-8787 (Phone)
412-268-6938 (Fax)

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