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Prospect Theory and Loss Aversion in the Housing Market

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  • Florent Buisson

Abstract

A stylized fact of the housing market is the strong positive correlation between prices and trading volume. Loss aversion from the sellers is one of the most often suggested explanations for this phenomenon, through an increase in sellers' reservation value. In this paper, I demonstrate that on the contrary, the effect of loss aversion is to decrease the reservation value, not to increase it. I suggest alternative behavioral explanations for the observed stylized fact.

Suggested Citation

  • Florent Buisson, 2016. "Prospect Theory and Loss Aversion in the Housing Market," Journal of Real Estate Research, Taylor & Francis Journals, vol. 38(2), pages 229-250, April.
    • Handle: RePEc:taf:rjerxx:v:38:y:2016:i:2:p:229-250
    DOI: 10.1080/10835547.2016.12091444
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    Cited by:

    1. Akshita Singh & Shailendra Kumar & Utkarsh Goel & Amar Johri, 2023. "Behavioural biases in real estate investment: a literature review and future research agenda," Humanities and Social Sciences Communications, Palgrave Macmillan, vol. 10(1), pages 1-17, December.
    2. 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).
    3. Yu Zhu & Randall Wright & Damien Gaumont, 2017. "Modeling House Prices," 2017 Meeting Papers 744, Society for Economic Dynamics.
    4. Brzezicka Justyna & Tomal Mateusz, 2023. "Estimation of the Utility Function of Money and Housing Based on the Cumulative Prospect Theory," Real Estate Management and Valuation, Sciendo, vol. 31(3), pages 83-92, September.

    More about this item

    JEL classification:

    • L85 - Industrial Organization - - Industry Studies: Services - - - Real Estate Services

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