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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 these expectations affect market choices. We provide the first experimental evidence based on a large-scale, high-stakes field experiment in the United States. We provided information by mail to 57,910 homeowners who recently listed their homes on the market. Collectively, these homes were worth $34 billion dollars. 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 subject’s market choices. We find that, consistent with economic theory, higher home price expectations caused the subjects to delay selling their homes. These effects are statistically highly significant, economically large in magnitude, and robust to a number of sharp checks. Our results indicate that market choices are highly elastic to expectations: a 1 percentage point increase in home price expectations reduced the probability of selling within six months by 2.45 percentage points. Moreover, we provide evidence that this behavioral elasticity would be even higher if it were not for the presence of optimization frictions.

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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    1. Luis Armona & Andreas Fuster & Basit Zafar, 2019. "Home Price Expectations and Behaviour: Evidence from a Randomized Information Experiment," Review of Economic Studies, Oxford University Press, vol. 86(4), pages 1371-1410.
    2. Olivier Armantier & Scott Nelson & Giorgio Topa & Wilbert van der Klaauw & Basit Zafar, 2016. "The Price Is Right: Updating Inflation Expectations in a Randomized Price Information Experiment," The Review of Economics and Statistics, MIT Press, vol. 98(3), pages 503-523, July.
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    4. Zoë Cullen & Ricardo Perez-Truglia, 2018. "How Much Does Your Boss Make? The Effects of Salary Comparisons," NBER Working Papers 24841, National Bureau of Economic Research, Inc.
    5. Marcelo L. Bérgolo & Rodrigo Ceni & Guillermo Cruces & Matias Giaccobasso & Ricardo Perez-Truglia, 2017. "Tax Audits as Scarecrows: Evidence from a Large-Scale Field Experiment," NBER Working Papers 23631, National Bureau of Economic Research, Inc.
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    15. Ricardo Perez-Truglia & Guillermo Cruces, 2017. "Partisan Interactions: Evidence from a Field Experiment in the United States," Journal of Political Economy, University of Chicago Press, vol. 125(4), pages 1208-1243.
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    Cited by:

    1. Brad C. Nathan & Ricardo Perez-Truglia & Alejandro Zentner, 2020. "My Taxes are Too Darn High: Tax Protests as Revealed Preferences for Redistribution," NBER Working Papers 27816, National Bureau of Economic Research, Inc.

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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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