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Market news and credibility cues improve house price predictions: An experiment on bounded rationality in real estate

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  • Isler, Ozan
  • Flew, Terry
  • Erol, Isil
  • Dulleck, Uwe

Abstract

We experimentally study bounded rationality in real estate by observing the effects of market news and media credibility cues on house price predictions. Non-professional market actors read news articles about recent house price trends from online news sources varying in perceived trustworthiness and brand anonymity, and then predicted selling prices of apartments for monetary reward. Boundedly rational actors are expected to make (imperfect) use of public information and rely on contextual ques to infer information quality. Price predictions were in the opposite direction of market trends in a control condition without market news. As hypothesized, (1) market news on price trends increased the accuracy of predictions, and (2) information from a more credible medium had stronger effect on price predictions when its brand was made visible. Systematic inaccuracies in price predictions, their improvement with market information, and reliance on credibility cues suggest that non-professional property valuations are boundedly rational.

Suggested Citation

  • Isler, Ozan & Flew, Terry & Erol, Isil & Dulleck, Uwe, 2021. "Market news and credibility cues improve house price predictions: An experiment on bounded rationality in real estate," Journal of Behavioral and Experimental Finance, Elsevier, vol. 31(C).
    • Handle: RePEc:eee:beexfi:v:31:y:2021:i:c:s2214635021000940
    DOI: 10.1016/j.jbef.2021.100550
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    References listed on IDEAS

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    2. Kamer-Ainur Aivaz & Constantin Avram, 2021. "An analysis of the performance of the companies in Constanta County which operate in the real estate transactions field in the context of sustainable development," Technium Social Sciences Journal, Technium Science, vol. 26(1), pages 475-487, Decembrie.

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    More about this item

    Keywords

    Bounded rationality; Real estate markets; Economic experiment; Price predictions;
    All these keywords.

    JEL classification:

    • C90 - Mathematical and Quantitative Methods - - Design of Experiments - - - General
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations

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