Estimating the weight of opportunity costs in housing consumption

Machiel van Dijk

Applied Economics, 2017, vol. 49, issue 57, 5762-5770

Abstract: Behavioural economics suggests that people tend to neglect or underweight opportunity costs. However, strong empirical evidence for the size of the underweighting appears to be largely absent from the literature. What are the weights people attach to opportunity costs relative to out-of-pocket costs? In this article, I estimate the weight of opportunity costs in probably the largest economic decision that households make: buying a house. I show that homeowners attach approximately twice as much weight to out-of-pocket costs of their housing consumption than to the opportunity costs associated with this.

Date: 2017
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DOI: 10.1080/00036846.2017.1340579

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