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

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Author Info
Uri Simonsohn
George Loewenstein

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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. Copyright 2006 Royal Economic Society.

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File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1468-0297.2006.01052.x
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Publisher Info
Article provided by Royal Economic Society in its journal The Economic Journal.

Volume (Year): 116 (2006)
Issue (Month): 508 (01)
Pages: 175-199
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Handle: RePEc:ecj:econjl:v:116:y:2006:i:508:p:175-199

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  1. Kristina Shampan'er & Dan Ariely, 2006. "How small is zero price? : the true value of free products," Working Papers 06-16, Federal Reserve Bank of Boston. [Downloadable!]
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This page was last updated on 2009-11-12.

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