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Reference Dependence in the Housing Market

Author

Listed:
  • Steffen Andersen
  • Cristian Badarinza
  • Lu Liu
  • Julie Marx
  • Tarun Ramadorai

Abstract

We quantify reference dependence and loss aversion in the housing market using rich Danish administrative data. Our structural model includes loss aversion, reference dependence, financial constraints, and a sale decision, and matches key nonparametric moments, including a "hockey stick" in listing prices with nominal gains, and bunching at zero realized nominal gains. Households derive substantial utility from gains over the original house purchase price; losses affect households roughly 2.5 times more than gains. The model helps explain the positive correlation between aggregate house prices and turnover, but cannot explain visible attenuation in reference dependence when households are more financially constrained.

Suggested Citation

  • Steffen Andersen & Cristian Badarinza & Lu Liu & Julie Marx & Tarun Ramadorai, 2022. "Reference Dependence in the Housing Market," American Economic Review, American Economic Association, vol. 112(10), pages 3398-3440, October.
    • Handle: RePEc:aea:aecrev:v:112:y:2022:i:10:p:3398-3440
    DOI: 10.1257/aer.20191766
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    Cited by:

    1. Yanjiang Zhang & Yong Tu & Yongheng Deng, 2024. "Duration‐dependent transaction tax effects on sellers and their behaviors," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 52(1), pages 140-183, January.
    2. Jiang, Erica Xuewei & Zhang, Anthony Lee, 2025. "Collateral value uncertainty and mortgage credit provision," Journal of Financial Economics, Elsevier, vol. 169(C).
    3. Hurmeranta, Risto & Lyytikäinen, Teemu, 2025. "Nominal Loss Aversion in the Housing Market and Household Mobility," Working Papers 178, VATT Institute for Economic Research.
    4. Bramoullé, Y. & Ghiglino, C., 2024. "Status Consumption in Networks: A Reference Dependent Approach," Janeway Institute Working Papers 2409, Faculty of Economics, University of Cambridge.
    5. Badarinza, Cristian & Ramadorai, Tarun & Siljander, Juhana & Tripathy, Jagdish, 2024. "Behavioral Lock-In: Aggregate Implications of Reference Dependence in the Housing Market," CEPR Discussion Papers 19123, C.E.P.R. Discussion Papers.
    6. Gal Amedi, 2023. "The Determinants of the Transit Accessibility Premium," Bank of Israel Working Papers 2023.12, Bank of Israel.
    7. Ross, Stephen L. & Zhou, Tingyu, 2024. "Loss aversion and focal point bias: Empirical evidence from housing markets," Journal of Behavioral and Experimental Finance, Elsevier, vol. 42(C).
    8. Mathieu Aubry & Roman Kräussl & Gustavo Manso & Christophe Spaenjers, 2023. "Biased Auctioneers," Journal of Finance, American Finance Association, vol. 78(2), pages 795-833, April.
    9. Jin, Changha & Yun, Sungho, 2025. "The impact of loss aversion on seller behavior in the housing market," Journal of Housing Economics, Elsevier, vol. 68(C).
    10. Julia Fonseca & Lu Liu, 2024. "Mortgage Lock‐In, Mobility, and Labor Reallocation," Journal of Finance, American Finance Association, vol. 79(6), pages 3729-3772, December.
    11. Daniel Reck & Arthur Seibold, 2023. "The Welfare Economics of Reference Dependence," CRC TR 224 Discussion Paper Series crctr224_2023_450, University of Bonn and University of Mannheim, Germany.
    12. Steegmans, Joep & Hassink, Wolter, 2025. "Nominal loss aversion and equity constraints in house price determination: Empirical evidence in the absence of down-payment constraints," Journal of Housing Economics, Elsevier, vol. 69(C).
    13. Fang, Ximeng & Singhal, Puja, 2024. "Weather to pay attention to energy efficiency on the housing market," Economics Letters, Elsevier, vol. 245(C).
    14. van Dolder, Dennie & Vandenbroucke, Jurgen, 2024. "Behavioral risk profiling: Measuring loss aversion of individual investors," Journal of Banking & Finance, Elsevier, vol. 168(C).

    More about this item

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth
    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets

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