Loss aversion and anchoring in commercial real estate pricing: Empirical evidence and price index implications
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Geltner_Loss aversion.pdf
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279.75 KB
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Author(s)
Bokhari, Sheharyar
Geltner, David M.
Date Issued
June 2011
Journal
Real Estate Economics
Publisher
Wiley Blackwell
Citation
Bokhari, Sheharyar, and David Geltner. “Loss Aversion and Anchoring in Commercial Real Estate Pricing: Empirical Evidence and Price Index Implications.” Real Estate Economics 39.4 (2011): 635–670.
Version
Author's final manuscript
Abstract
Loss aversion behavior plays a major role in the pricing of commercial properties, and it varies both across the type of market participants and across the cycle. We find that sophisticated and more experienced investors are at least as loss averse as their counterparts and that loss aversion operated most strongly during the cycle peak in 2007. We also document a possible anchoring effect of the asking price in influencing buyer valuation and subsequent transaction price. We demonstrate the importance of behavioral phenomena in constructing hedonic price indices, and we find that the impact of loss aversion is attenuated at the aggregate market level. This suggests that the pricing and volume cycle during 2001–2009 was little affected by loss aversion.
MIT Department
Massachusetts Institute of Technology. Center for Real Estate
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Creative Commons Attribution-Noncommercial-Share Alike 3.0
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DOI of Published Version
https://doi.org/10.1111/j.1540-6229.2011.00308.x
