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Loss Aversion and Seller Behaviour: Evidence from the Housing Market

  • Genesove, David
  • Mayer, Christopher

Data from downtown Boston in the 1990s show that loss aversion determines seller behaviour in the housing market. Condominium owners subject to nominal losses: (1) set higher asking prices of 25-35% of the difference between the property’s expected selling price and their original purchase price; (2) attain higher selling prices of 3-18% of that difference; and (3) exhibit a much lower sale hazard than other sellers. The list price results are twice as large for owner-occupants as for investors, but hold for both. These findings are consistent with prospect theory and help explain the positive price-volume correlation in real estate markets.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 2813.

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Date of creation: May 2001
Date of revision:
Handle: RePEc:cpr:ceprdp:2813
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  1. Amemiya, Takeshi, 1980. "Selection of Regressors," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 21(2), pages 331-54, June.
  2. Kahneman, Daniel & Tversky, Amos, 1979. "Prospect Theory: An Analysis of Decision under Risk," Econometrica, Econometric Society, vol. 47(2), pages 263-91, March.
  3. Genesove, David & Mayer, Christopher J, 1997. "Equity and Time to Sale in the Real Estate Market," American Economic Review, American Economic Association, vol. 87(3), pages 255-69, June.
  4. Genesove, David & Mayer, Christopher, 2001. "Loss Aversion and Seller Behaviour: Evidence from the Housing Market," CEPR Discussion Papers 2813, C.E.P.R. Discussion Papers.
  5. repec:oup:qjecon:v:112:y:1997:i:2:p:341-74 is not listed on IDEAS
  6. Sven Rady, 1998. "Housing Market Fluctuations in a Life-Cycle Economy with Credit Constraints," FMG Discussion Papers dp296, Financial Markets Group.
  7. repec:tpr:qjecon:v:116:y:2001:i:4:p:1233-1260 is not listed on IDEAS
  8. Shapira, Zur & Venezia, Itzhak, 2001. "Patterns of behavior of professionally managed and independent investors," Journal of Banking & Finance, Elsevier, vol. 25(8), pages 1573-1587, August.
  9. repec:oup:qjecon:v:110:y:1995:i:1:p:73-92 is not listed on IDEAS
  10. repec:oup:qjecon:v:110:y:1995:i:2:p:379-406 is not listed on IDEAS
  11. Loewenstein, George F & Sicherman, Nachum, 1991. "Do Workers Prefer Increasing Wage Profiles?," Journal of Labor Economics, University of Chicago Press, vol. 9(1), pages 67-84, January.
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