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Real estate list price anchoring and cognitive ability

Author

Listed:
  • Sergio Da Silva
  • Raul Matsushita
  • Mariana Pereira
  • Mariê Fontana

Abstract

Purpose - This paper aims to revisit the issue of anchoring effects in real estate markets to consider the current dual-processing theory of mind. Design/methodology/approach - The effects of high and low anchors in a price estimation task are, thus, explained by both Systems 1 and 2 as these play a key role in the guess of the “correct” list price. The authors also take into account the mediation of overconfidence in the estimates and how confidence relates to cognitive ability. Moreover, the authors nuance the field experiment by considering the decisions taken by professional real estate agents and amateur students alike because experts are expected to be less prone to cognitive biases. Findings - The large anchoring index of 67 per cent found for the real estate agents suggests these professionals make their judgment unconsciously by priming (and thus, using their System 1), despite being overconfident. In contrast, an even larger anchoring index for the undergraduates (86 per cent) was found, as expected for nonexperts. However, the authors suggest the students’ judgments use their System 2 because they are clueless in their non-anchored estimates and, as result, consider the list prices as a heuristic to deliberately anchor and adjust. Originality/value - Anchoring effects in real estate markets have not been approached so far by the dual-processing theory of mind.

Suggested Citation

  • Sergio Da Silva & Raul Matsushita & Mariana Pereira & Mariê Fontana, 2019. "Real estate list price anchoring and cognitive ability," International Journal of Housing Markets and Analysis, Emerald Group Publishing Limited, vol. 12(4), pages 581-603, June.
    • Handle: RePEc:eme:ijhmap:ijhma-08-2018-0060
    DOI: 10.1108/IJHMA-08-2018-0060
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    Citations

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    Cited by:

    1. Ka-Shing Cheung & Chung-Yim Yiu & Yihan Guan, 2022. "Homebuyer Purchase Decisions: Are They Anchoring to Appraisal Values or Market Prices?," JRFM, MDPI, vol. 15(4), pages 1-13, March.

    More about this item

    Keywords

    Real estate market; Behavioural economics; Overconfidence; Anchoring effect; D03; R30; C93; L11;
    All these keywords.

    JEL classification:

    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • R30 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - General
    • C93 - Mathematical and Quantitative Methods - - Design of Experiments - - - Field Experiments
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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