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The Price of Inattention: Evidence from the Swedish Housing Market

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  • Luca Repetto
  • Alex Solís

Abstract

Do behavioral biases affect prices in a high-stakes market? We study the role of left-digit bias in the purchase of an apartment. Left-digit bias is the failure to fully process digits after the first, perceiving prices just below a round number (such as $3.99) as cheaper than their round counterpart ($4). Apartments with asking prices just below round millions are sold at a 3%–5% higher final price after an auction. This effect appears not to be driven by differences in observables or in real estate agents’ behavior. Auctions for apartments listed just below round numbers are more competitive and attract more bidders and bids.

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  • Luca Repetto & Alex Solís, 2020. "The Price of Inattention: Evidence from the Swedish Housing Market," Journal of the European Economic Association, European Economic Association, vol. 18(6), pages 3261-3304.
    • Handle: RePEc:oup:jeurec:v:18:y:2020:i:6:p:3261-3304.
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    File URL: http://hdl.handle.net/10.1093/jeea/jvz065
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    Cited by:

    1. Florian Englmaier & Andreas Roider & Lars Schlereth & Steffen Sebastian, 2023. "Round-Number Effects in Real Estate Prices: Evidence from Germany," CESifo Working Paper Series 10746, CESifo.
    2. Meng, Charlotte C., 2023. "The price paid: Heuristic thinking and biased reference points in the housing market," Journal of Urban Economics, Elsevier, vol. 134(C).
    3. Heraud, Florian & Page, Lionel, 2024. "Does the left-digit bias affect prices in financial markets?," Journal of Economic Behavior & Organization, Elsevier, vol. 218(C), pages 20-29.
    4. Malmendier, Ulrike & Szeidl, Adam, 2020. "Fishing for fools," Games and Economic Behavior, Elsevier, vol. 122(C), pages 105-129.
    5. Weichselbaumer, Michael, 2023. "Unobserved heterogeneity and adjustment to behavioral bias: The case of used cars," International Journal of Industrial Organization, Elsevier, vol. 89(C).
    6. Ross, Stephen L. & Zhou, Tingyu, 2024. "Loss aversion and focal point bias: Empirical evidence from housing markets," Journal of Behavioral and Experimental Finance, Elsevier, vol. 42(C).
    7. Ity Shurtz, 2022. "Heuristic thinking in the workplace: Evidence from primary care," Health Economics, John Wiley & Sons, Ltd., vol. 31(8), pages 1713-1729, August.

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    More about this item

    JEL classification:

    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets

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