Betting on the House: Subjective Expectations and Market Choices

Nicolas Bottan and Ricardo Perez-Truglia

No 27412, NBER Working Papers from National Bureau of Economic Research, Inc

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.

JEL-codes: C81 C93 D83 D84 R31 (search for similar items in EconPapers)
Date: 2020-06
New Economics Papers: this item is included in nep-exp
Note: AP CF IFM
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Citations: View citations in EconPapers (21)

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Journal Article: Betting on the House: Subjective Expectations and Market Choices (2025)
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