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

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  • Uri Simonsohn
  • George Loewenstein

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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Bibliographic 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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Cited by:
  1. Maniadis, Zacharias & Tufano, Fabio & List, John, 2013. "One swallow doesn’t make a summer: new evidence on anchoring effects," Discussion Paper Series In Economics And Econometrics 1314, Economics Division, School of Social Sciences, University of Southampton.
  2. Andrea Isoni & Peter Brooks & Graham Loomes & Robert Sugden, 2011. "Do markets reveal preferences - or shape them?," Working Paper series, University of East Anglia, Centre for Behavioural and Experimental Social Science (CBESS) 11-03, School of Economics, University of East Anglia, Norwich, UK..
  3. Violand, Wendy & Simon, Arnaud, 2011. "Real estate brokers: do they inflate housing prices? The case of France," Economics Papers from University Paris Dauphine 123456789/515, Paris Dauphine University.
  4. Pascaline Dupas, 2014. "Short‐Run Subsidies and Long‐Run Adoption of New Health Products: Evidence From a Field Experiment," Econometrica, Econometric Society, vol. 82(1), pages 197-228, 01.
  5. Zacharias Maniadis & Fabio Tufano & John A. List, 2014. "One Swallow Doesn't Make a Summer: New Evidence on Anchoring Effects," American Economic Review, American Economic Association, vol. 104(1), pages 277-90, January.
  6. Holger Herz & Dmitry Taubinsky, 2013. "Market experience is a reference point in judgments of fairness," ECON - Working Papers 128, Department of Economics - University of Zurich.
  7. 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.

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