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Loss Aversion and Seller Behavior: Evidence from the Housing Market


  • David Genesove
  • Christopher Mayer


We show that loss aversion is an important feature in explaining sellers’ behavior in the housing market. Data from the 1990-97 boom-bust cycle in downtown Boston show that condominium owners subject to nominal losses 1) set higher asking prices of 25-35 percent of the difference between the expected selling price of a property and their original purchase price; 2) attain higher selling prices of 3-18 percent of that difference; and 3) exhibit a much lower hazard rate of sale than other sellers. The list price results are roughly twice as large for owner-occupants as investors, although they hold for both groups. We also show that the larger the prospective loss, the smaller the marginal mark-up of list price over expected selling. These findings are consistent with the shape of the value function in prospect theory as first proposed by Kahneman and Tversky (1979). They also help explain the strong positive correlation between aggregate prices and volume in this and other real estate markets.

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  • David Genesove & Christopher Mayer, "undated". "Loss Aversion and Seller Behavior: Evidence from the Housing Market," Zell/Lurie Center Working Papers 323, Wharton School Samuel Zell and Robert Lurie Real Estate Center, University of Pennsylvania.
  • Handle: RePEc:wop:pennzl:323

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    References listed on IDEAS

    1. Sven Rady, 1998. "Housing Market Fluctuations in a Life-Cycle Economy with Credit Constraints," FMG Discussion Papers dp296, Financial Markets Group.
    2. 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 255-269, June.
    3. Eldar Shafir & Peter Diamond & Amos Tversky, 1997. "Money Illusion," The Quarterly Journal of Economics, Oxford University Press, vol. 112(2), pages 341-374.
    4. Kahneman, Daniel & Tversky, Amos, 1979. "Prospect Theory: An Analysis of Decision under Risk," Econometrica, Econometric Society, vol. 47(2), pages 263-291, March.
    5. Jeremy C. Stein, 1995. "Prices and Trading Volume in the Housing Market: A Model with Down-Payment Effects," The Quarterly Journal of Economics, Oxford University Press, vol. 110(2), pages 379-406.
    6. Shlomo Benartzi & Richard H. Thaler, 1995. "Myopic Loss Aversion and the Equity Premium Puzzle," The Quarterly Journal of Economics, Oxford University Press, vol. 110(1), pages 73-92.
    7. 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 331-354, June.
    8. 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.
    9. David Genesove & Christopher Mayer, 2001. "Loss Aversion and Seller Behavior: Evidence from the Housing Market," The Quarterly Journal of Economics, Oxford University Press, vol. 116(4), pages 1233-1260.
    10. 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.
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    JEL classification:

    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand

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