Acquiring land in cold winter: Consequences and possible explanations

This paper documents the environmentally induced behavioral biases in the land market and shows how buyers correct their biases by learning from repeated transactions. Using a sample of government land sales along two sides of the heating service line in China, we first show land parcels transacted in the south in the winter are associated with an average price discount of 7.1%, compared to transactions in the north where heating service is provided. We discuss three possible explanations, including projection bias, incorrect belief, and salience bias. We find adverse weather such as low temperature and extreme weather may trigger the mispricing in the absence of the heating service, lending support to the projection bias. Moreover, our empirical investigations suggest the local government, as the only land seller, responds weakly to such biases. We also provide suggestive evidence that individual buyers in the south can learn from prior experience.