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Mental accounting in the housing market

Johan Almenberg and Artashes Karapetyan

No 453, IEW - Working Papers from Institute for Empirical Research in Economics - University of Zurich

Abstract: We 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 suboptimal 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)
Date: 2009-11
New Economics Papers: this item is included in nep-ure
References: Add references at CitEc
Citations: View citations in EconPapers (2)

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Related works:
Working Paper: Mental accounting in the housing market (2010) Downloads
Working Paper: Mental Accounting in the Housing Market (2010) Downloads
Working Paper: Mental Accounting in the Housing Market (2009) Downloads
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