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Price setting and the reluctance to realize losses in apartment markets

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  • Einiö, Mikko
  • Kaustia, Markku
  • Puttonen, Vesa

Abstract

Using data on all real estate transactions in the greater Helsinki area during 1987-2003 (about 80,000 apartment transactions with capital gains available), we find substantial support for loss realization aversion. Further, a disproportionate number of sales occurred exactly at the original purchase price. Reluctance to realize losses is weaker with pricier apartments, seasoned sellers, and apartments that are likely bought for investment purposes. Mortgage down payment requirements are unlikely to fully explain the results. On the whole the results are consistent with loss aversion and mental accounting.

Suggested Citation

  • Einiö, Mikko & Kaustia, Markku & Puttonen, Vesa, 2008. "Price setting and the reluctance to realize losses in apartment markets," Journal of Economic Psychology, Elsevier, vol. 29(1), pages 19-34, February.
    • Handle: RePEc:eee:joepsy:v:29:y:2008:i:1:p:19-34
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    References listed on IDEAS

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