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Beyond Finance Theory: How Farming Influences the Behaviour of Real Estate Investors

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  • Paul Royston

Abstract

How do real estate investors make buy and sell decisions? Finance theory offers portfolio and capital market theories to answer the question of how investors should optimise their selection decisions. But finance theory consigns the behaviour of investors to that of Îrational wealth maximisersÌ. Are investors rational decision makers? The world of finance is taking a lot of interest in this issue as witnessed by a surge of research in the field of behavioural finance. Behavioural finance borrows from the disciplines of psychology and judgement and decision making to answer the question Îhow do investors behave?Ì Behavioural finance has uncovered evidence of non-rational behaviour and is working on the development of theories that are able to accommodate the true diversity and complexity of human decision makers. This paper considers the nature of economic rationality as adopted in traditional finance and explores the potential for aspects of behavioural finance to be applied to the study of real estate investment markets. The application of behavioural research offers the potential to increase our knowledge and understanding of how real estate investment markets operate and to help investors improve their real estate investment decisions.

Suggested Citation

  • Paul Royston, 2003. "Beyond Finance Theory: How Farming Influences the Behaviour of Real Estate Investors," ERES eres2003_252, European Real Estate Society (ERES).
    • Handle: RePEc:arz:wpaper:eres2003_252
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    JEL classification:

    • R3 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location

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