Sellers' and Buyers' Reference Point Dynamics in the Housing Market

Abstract

Abstract Building on behavioural research in economics, this paper examines reference points for sellers and for buyers in the housing market. Using experimental data, it is shown that, contrary to standard economic theory predictions, reference point dynamics can be influenced by market evolution and available information. More precisely, is it shown that the reference point depends on the seller/buyer role in the housing market, that past prices influence the reference point and that the reference point can be manipulated by information disclosure. The results are consistent with the theoretical implications of prospect theory and mental accounting. Keywords: Prospect theoryreference pointloss aversionmental accountinginformation disclosurehousing