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Memory and Reference Prices: An Application to Rental Choice

Author

Listed:
  • Pedro Bordalo
  • Nicola Gennaioli
  • Andrei Shleifer

Abstract

Loewenstein and Simonsohn (2006) found that movers across US cities anchor their rental choices to rents in the city of origin, but subsequently converge to comparable local households. We explain this finding using the authors' (2019) model of memory and attention. Rents in the destination city cue recall of "normal" rents in the city of origin, making the former surprisingly high or low, causing movers to under- or overspend, respectively. Over time, experience with new city rents allows the memory database to adapt, and the effect fades away. The model yields two new predictions, for which we find supportive evidence.

Suggested Citation

  • Pedro Bordalo & Nicola Gennaioli & Andrei Shleifer, 2019. "Memory and Reference Prices: An Application to Rental Choice," AEA Papers and Proceedings, American Economic Association, vol. 109, pages 572-576, May.
    • Handle: RePEc:aea:apandp:v:109:y:2019:p:572-76
    Note: DOI: 10.1257/pandp.20191052
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    Cited by:

    1. Jonas Radbruch & Amelie Schiprowski, 2025. "Interview Sequences and the Formation of Subjective Assessments," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 92(2), pages 1226-1256.
    2. Edika Quispe-Torreblanca & David Hume & John Gathergood & George Loewenstein & Neil Stewart, 2026. "At the Top of the Mind: Peak Prices and the Disposition Effect," Journal of Political Economy Microeconomics, University of Chicago Press, vol. 4(1), pages 265-315.
    3. Giacoletti, Marco & Parsons, Christopher A., 2022. "Peak-Bust rental spreads," Journal of Financial Economics, Elsevier, vol. 143(1), pages 504-526.
    4. Battigalli, Pierpaolo & Generoso, Nicolò, 2024. "Information flows and memory in games," Games and Economic Behavior, Elsevier, vol. 145(C), pages 356-376.
    5. Pedro Bordalo & Nicola Gennaioli & Rafael La Porta & Matthew OBrien & Andrei Shleifer, 2024. "Long-Term Expectations and Aggregate Fluctuations," NBER Macroeconomics Annual, University of Chicago Press, vol. 38(1), pages 311-347.
    6. Xie, Erhao, 2021. "Empirical properties and identification of adaptive learning models in behavioral game theory," Journal of Economic Behavior & Organization, Elsevier, vol. 191(C), pages 798-821.

    More about this item

    JEL classification:

    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand
    • R23 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Regional Migration; Regional Labor Markets; Population

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