Does the first impression matter? Efficiency testing of tenure-choice decision

Yuval Arbel, Chaim Fialkoff and Amichai Kerner

Regional Science and Urban Economics, 2016, vol. 60, issue C, 223-237

Abstract: The efficient market hypothesis states that rather than utilizing previous irrelevant information, rational decision-making is based solely on current information. In this paper, we test the efficient-market hypothesis with respect to the timing of home purchase. We use data obtained from the privatization of the public housing program in Israel to estimate the weight given to current, as opposed to the first, reduction rate offered to public housing tenants. In line with the relevant psychological literature, results indicate that the first impression generates a very effective and long-lasting imprint: only 40% weight is given to the current reduction rate, compared with 60% weight given to the first reduction rate public housing tenants encounter. When the sample period is stratified by governments in office, this weight rises (drops) to 50% (0%–30%) among tenants who accelerate (defer) the purchase. Research findings thus stress the strong reliance on irrelevant information in tenure-choice decision in response to a series of varying reduction conditions offered to tenants.

Keywords: Housing tenure choice; Efficient market hypothesis; Behavioral economics (search for similar items in EconPapers)
Date: 2016
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Persistent link: https://EconPapers.repec.org/RePEc:eee:regeco:v:60:y:2016:i:c:p:223-237

DOI: 10.1016/j.regsciurbeco.2016.07.004

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