Reference dependence in the housing market
File(s)
Accepted version
Author(s)
Ramadorai, Tarun
Andersen, Steffen
Badarinza, Cristian
Liu, Lu
Marx, Julie
Type
Journal Article
Abstract
We quantify reference dependence and loss aversion in the housing market using rich Danish administrative data. Our structural model includes loss aversion,
reference dependence, fnancial constraints, and a sale decision, and matches key
nonparametric moments, including a “hockey stick” in listing prices with nominal
gains, and bunching at zero realized nominal gains. Households derive substantial
utility from gains over the original house purchase price; losses afect households
roughly 2.5 times more than gains. The model helps explain the positive correlation
between aggregate house prices and turnover, but cannot explain visible attenuation
in reference dependence when households are more fnancially constrained.
reference dependence, fnancial constraints, and a sale decision, and matches key
nonparametric moments, including a “hockey stick” in listing prices with nominal
gains, and bunching at zero realized nominal gains. Households derive substantial
utility from gains over the original house purchase price; losses afect households
roughly 2.5 times more than gains. The model helps explain the positive correlation
between aggregate house prices and turnover, but cannot explain visible attenuation
in reference dependence when households are more fnancially constrained.
Date Issued
2022-10-01
Date Acceptance
2022-07-13
Citation
The American Economic Review, 2022, 112 (10), pp.3398-3440
ISSN
0002-8282
Publisher
American Economic Association
Start Page
3398
End Page
3440
Journal / Book Title
The American Economic Review
Volume
112
Issue
10
Copyright Statement
© 2022 American Economic Association. All rights reserved
Publication Status
Published