Mental Accounting in the Housing Market
Johan Almenberg and
No 798, Working Paper Series from Research Institute of Industrial Economics
We use a survey to identify a consumer bias with regard to different sources of debt-financing. Less salient debt may generate psychological benefits. This should be weighed against the possible economic costs of a sub-optimal capital structure; but low levels of financial literacy make it unlikely that all households perceive the full economic costs. As a result there is a bias in favour of less salient debt. In a market with limited scope for arbitrage this consumer bias is likely to generate inefficiencies. We examine such a market in both theory and practice. The predictions of our model are given strong support by market data.
Keywords: Household Finance; Mental Accounting; Co-op; Capital Structure (search for similar items in EconPapers)
JEL-codes: D12 G14 G21 G32 (search for similar items in EconPapers)
Pages: 44 pages
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Working Paper: Mental accounting in the housing market (2010)
Working Paper: Mental Accounting in the Housing Market (2010)
Working Paper: Mental accounting in the housing market (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:hhs:iuiwop:0798
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