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The Impact of Commitment on Pending Home Sales in Entrapping Situations

Author

Listed:
  • Jin Man Lee

    (DePaul University)

  • Kiat Ying Seah

    (National University of Singapore)

  • James Shilling

    (DePaul University)

Abstract

This paper examines the decision-making processes of home buyers during the Global Financial Crisis, with a specific focus on passive coping mechanisms and the role of risk aversion. The study investigates how risk aversion influences the behavior of home buyers and highlights the disparities between high-income and low-income buyers. The findings reveal that high-income home buyers exhibit a risk aversion parameter that ranges from 1.74 to 1.99, while low-income home buyers have a parameter that ranges from 0.60 to 0.62, thus indicating different levels of risk tolerance and decision-making patterns among the income groups. These findings suggest that low-income home buyers are more likely to endure unfavorable situations or avoid making changes in periods of declining house prices than high-income home buyers. This behavior aligns with the concept of passive coping, where low-income home buyers choose to endure unfavorable situations rather than making changes because they fear the negative outcomes that may arise from taking a different course of action. They might worry that if they abandon the contract, they will miss out on the opportunity to own a home, live in a desirable neighborhood, or secure a specific property. This fear of potential losses leads them to choose passive coping, where they endure the current situation rather than making changes that could involve risks or uncertainties.

Suggested Citation

  • Jin Man Lee & Kiat Ying Seah & James Shilling, 2023. "The Impact of Commitment on Pending Home Sales in Entrapping Situations," International Real Estate Review, Global Social Science Institute, vol. 26(4), pages 491-520.
  • Handle: RePEc:ire:issued:v:26:n:04:2023:p:491-520
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    References listed on IDEAS

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