The illusion of a hedonic price function: Nonparametric interpretable segmentation for hedonic inference

In housing markets, one bundle of characteristics is regarded as corresponding to a single price via a hedonic function. However, under the conditions of market mixture, the correspondence can be multi-valued and the existence of a single function is an illusion. The market segmentation approach decomposes a complex correspondence into simple functions. In this paper, we propose an automatic segmentation method that satisfies the submarket’s equilibrium and substitutability conditions. Our empirical results show that our method provides a reasonable segmentation.