The impact of loss aversion on seller behavior in the housing market

Changha Jin and Sungho Yun

Journal of Housing Economics, 2025, vol. 68, issue C

Abstract: This study explores how loss aversion influences seller behavior in the housing market, employing both the reservation rule and the number-of-offers rule approaches. We show that loss aversion can increase the reservation value in an infinite-time model under the reservation rule, and a disposition effect can arise solely from reference dependence with risk-neutral sellers, consistent with prior research. In contrast, in a finite-time model with specific deadlines, the prospect of forced sales at a loss in the final period incentivizes sellers to opt for earlier sales, leading to dynamic fluctuations in the reservation value, both upwards and downwards. This finding adds a novel dimension to the existing literature. Furthermore, employing the number-of-offers rule, we find that loss aversion can lead sellers to await more offers, supporting the negative correlation between prices and time on the market.

Keywords: Loss aversion; Reservation value; Housing market; Price-volume correlation; Price-TOM correlation (search for similar items in EconPapers)
JEL-codes: D81 D91 R31 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jhouse:v:68:y:2025:i:c:s1051137725000075

DOI: 10.1016/j.jhe.2025.102048

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