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Understanding the prevalence and implications of homeowner money illusion

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  • Seiler, Michael J.

Abstract

Money illusion, the tendency to favor nominal values over more economically relevant real values, is argued to be the source of real estate bubbles causing unnecessary instability in the economy. We examine the existence of money illusion in a residential real estate setting as well as its implications for forming future price expectations and subsequent home purchase and mortgage selection decisions. We find that while money illusion is quite prevalent, it can be mitigated by presenting an analysis in economic, as opposed to affective, terms.

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  • Seiler, Michael J., 2014. "Understanding the prevalence and implications of homeowner money illusion," Journal of Behavioral and Experimental Finance, Elsevier, vol. 1(C), pages 74-84.
    • Handle: RePEc:eee:beexfi:v:1:y:2014:i:c:p:74-84
    DOI: 10.1016/j.jbef.2014.02.001
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    Cited by:

    1. Michael J. Seiler, 2016. "The Perceived Moral Reprehensibility of Strategic Mortgage Default," Framed Field Experiments 00622, The Field Experiments Website.

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