Judgemental Bias And Housing Choice

It is firmly established that human judgement and decision making often falls short of the standard required in the Behavioural Decision Theory of von Neumann and Morgenstern (1947). Consumers in particular seem vulnerable to systematic errors of judgement which affect their choice behaviour (Thaler, 1980; Simonson and Tversky, 1992; Ariely, Loewenstein and Prelec, 2003). Critics argue that such errors are minimised by market experience and in situations where the stakes are sufficiently high. When households and individuals make choices over housing these are among the most important personal finance decisions made during a lifetime. The stakes could hardly be higher. Yet these decisions are made infrequently and with little experience. Individuals may not be sure of their own preferences and have little context in which to form them. Thus it is an important area to examine whether behavioural phenomena occur and in what form. This paper examines the impact of several judgemental biases on housing choices, considering in particular the role of estate agents as choice architects, influencing behaviour and resulting in predictable biases in outcomes. The study indicates several areas where individuals are susceptible to manipulation of this kind including asymmetric dominance, compromise effects and value anchoring.