The Price of Inattention: Evidence from the Swedish Housing Market

Luca Repetto and Alex Solis

No 2017:10, Working Paper Series from Uppsala University, Department of Economics

Abstract: Do behavioral biases affect prices in a high-stake market? We study the role of left-digit bias in the purchase of an apartment, one of the most important assets in a household’s portfolio. Left-digit bias is the inability to fully process digits after the first, perceiving prices just below a round number (such as $3.99) as cheaper than their round counterpart ($4). We start by documenting that apartments listed at just-below asking prices are sold at a 3-5% higher final price after an auction. This effect appears not to be driven by i) differences in observable characteristics; ii) differences in real estate agents’behavior; or iii) institutional characteristics of the market. We show that apartments using just-below prices attract more bidders and bids, leading to higher competition and to a higher final price. Our results suggest that inattentive buyers might be losing roughly half a year of disposable income.

Keywords: Housing market; auctions; inattention; first-digit bias (search for similar items in EconPapers)
JEL-codes: C78 D44 D83 R31 (search for similar items in EconPapers)
Pages: 48 pages
Date: 2017-09-27
New Economics Papers: this item is included in nep-cta, nep-eur and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Related works:
Journal Article: The Price of Inattention: Evidence from the Swedish Housing Market (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:hhs:uunewp:2017_010

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