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The impact of loss aversion on seller behavior in the housing market

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  • Jin, Changha
  • Yun, Sungho

Abstract

This study explores how loss aversion influences seller behavior in the housing market, employing both the reservation rule and the number-of-offers rule approaches. We show that loss aversion can increase the reservation value in an infinite-time model under the reservation rule, and a disposition effect can arise solely from reference dependence with risk-neutral sellers, consistent with prior research. In contrast, in a finite-time model with specific deadlines, the prospect of forced sales at a loss in the final period incentivizes sellers to opt for earlier sales, leading to dynamic fluctuations in the reservation value, both upwards and downwards. This finding adds a novel dimension to the existing literature. Furthermore, employing the number-of-offers rule, we find that loss aversion can lead sellers to await more offers, supporting the negative correlation between prices and time on the market.

Suggested Citation

  • 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).
    • Handle: RePEc:eee:jhouse:v:68:y:2025:i:c:s1051137725000075
    DOI: 10.1016/j.jhe.2025.102048
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    Keywords

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    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • 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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