Memory and Reference Prices: An Application to Rental Choice

Pedro Bordalo, Nicola Gennaioli and Andrei Shleifer

AEA Papers and Proceedings, 2019, vol. 109, 572-76

Abstract: Loewenstein and Simonsohn (2006) found that movers across US cities anchor their rental choices to rents in the city of origin, but subsequently converge to comparable local households. We explain this finding using the authors' (2019) model of memory and attention. Rents in the destination city cue recall of "normal" rents in the city of origin, making the former surprisingly high or low, causing movers to under- or overspend, respectively. Over time, experience with new city rents allows the memory database to adapt, and the effect fades away. The model yields two new predictions, for which we find supportive evidence.

JEL-codes: D91 R21 R23 (search for similar items in EconPapers)
Date: 2019
Note: DOI: 10.1257/pandp.20191052
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Citations: View citations in EconPapers (8)

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Working Paper: Memory and Reference Prices: an Application to Rental Choice (2019)
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