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Does the Dream of Home Ownership Rest upon Biased Beliefs? A Test Based on Predicted and Realized Life Satisfaction

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  • Odermatt, Reto

    (University of Basel)

  • Stutzer, Alois

    (University of Basel)

Abstract

The belief that home ownership makes people happy is probably one of the most widespread intuitive theories of happiness. However, whether it is accurate is an open question. Based on individual panel data, we explore whether home buyers systematically overestimate the life satisfaction associated with living in their privately owned property. To identify potential prediction errors, we compare people's forecasts of their life satisfaction in five years' time with their current realizations. We find that, while moving into a purchased dwelling is associated with higher life satisfaction, people systematically overestimate the long-term satisfaction gain. The misprediction therein is driven by people who follow extrinsically-oriented life goals, highlighting biased beliefs regarding own preferences as a relevant mechanism in the prediction errors.

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  • Odermatt, Reto & Stutzer, Alois, 2020. "Does the Dream of Home Ownership Rest upon Biased Beliefs? A Test Based on Predicted and Realized Life Satisfaction," IZA Discussion Papers 13510, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp13510
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    Cited by:

    1. Sebastian Will & Timon Renz, 2021. "In Debt but Still Happy? Examining the Relationship between Homeownership and Life Satisfaction," ERES eres2021_89, European Real Estate Society (ERES).
    2. Gum-Ryeong Park & Jinho Kim, 2023. "Trajectories of Life Satisfaction Before and After Homeownership: The Role of Housing Affordability Stress," Journal of Happiness Studies, Springer, vol. 24(1), pages 397-408, January.

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    More about this item

    Keywords

    subjective well-being; projection bias; life satisfaction; life goals; housing tenure; home ownership; beliefs; intuitive theories of happiness; utility prediction;
    All these keywords.

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D90 - Microeconomics - - Micro-Based Behavioral Economics - - - General
    • I31 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General Welfare, Well-Being
    • R20 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - General

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