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Hyperbolic Discounting, Reference Dependence and its Implications for the Housing Market

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  • Hua Sun

    ()
    (California State University, San Bernardino)

  • Michael J. Seiler

    ()
    (Old Dominion University)

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    Abstract

    The influential work of Genesove and Mayer (2001) uses loss aversion theory to explain several puzzling behaviors in the housing market. In this study, we present an alternative theory, which does not require an asymmetric value function, to observe the same "loss aversion" behavior. Specifically, this paper presents a model in which a reference-dependent home seller has a symmetric value function, but faces an inter-temporal decision problem. Furthermore, the framework presented in this paper also helps explain the positive price-volume relationship and price dispersion effect, two observations that are well-documented in the housing market.

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    File URL: http://aux.zicklin.baruch.cuny.edu/jrer/papers/pdf/new_current/vol35n01/01.1_24.pdf
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    Bibliographic Info

    Article provided by American Real Estate Society in its journal journal of Real Estate Research.

    Volume (Year): 35 (2013)
    Issue (Month): 1 ()
    Pages: 1-24

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    Handle: RePEc:jre:issued:v:35:n:1:2013:p:1-24

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    Postal: American Real Estate Society Clemson University School of Business & Behavioral Science Department of Finance 401 Sirrine Hall Clemson, SC 29634-1323
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    Postal: Diane Quarles American Real Estate Society Manager of Member Services Clemson University Box 341323 Clemson, SC 29634-1323
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    Web: http://aux.zicklin.baruch.cuny.edu/jrer/about/get.htm

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