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Betting on the House: Subjective Expectations and Market Choices

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  • Nicolas L. Bottan
  • Ricardo Perez-Truglia

Abstract

Home price expectations play a central role in macroeconomics and finance. However, there is little direct evidence on how home price expectations affect market choices. We provide the first causal evidence based on a large-scale, high-stakes, and naturally occurring field experiment in the United States. We mailed letters with information on trends in home prices to 57,910 homeowners who had listed their homes on the market. Collectively, these homes were worth $34 billion. We randomized the information contained in the mailing to create non-deceptive, exogenous variation in the subjects’ home price expectations. We then used rich administrative data to measure the effects of these information shocks on the subjects’ market choices. We found that, consistent with economic theory, higher home price expectations caused a reduction in the probability of selling the home. These effects were highly statistically significant, economically large in magnitude, and robust to a number of sharp checks. Our results indicated that market choices were highly elastic to expectations: a 1 percentage point increase in home price expectations caused a 2.63 percentage point reduction in the probability of selling the property within 12 weeks.

Suggested Citation

  • Nicolas L. Bottan & Ricardo Perez-Truglia, 2020. "Betting on the House: Subjective Expectations and Market Choices," NBER Working Papers 27412, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:27412
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • C81 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Methodology for Collecting, Estimating, and Organizing Microeconomic Data; Data Access
    • C93 - Mathematical and Quantitative Methods - - Design of Experiments - - - Field Experiments
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • 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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