Prospect Theory and Loss Aversion in the Housing Market

Florent Buisson

Journal of Real Estate Research, 2016, vol. 38, issue 2, 229-250

Abstract: A stylized fact of the housing market is the strong positive correlation between prices and trading volume. Loss aversion from the sellers is one of the most often suggested explanations for this phenomenon, through an increase in sellers' reservation value. In this paper, I demonstrate that on the contrary, the effect of loss aversion is to decrease the reservation value, not to increase it. I suggest alternative behavioral explanations for the observed stylized fact.

Date: 2016
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DOI: 10.1080/10835547.2016.12091444

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