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Estimating the weight of opportunity costs in housing consumption

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  • Machiel van Dijk

Abstract

Behavioural economics suggests that people tend to neglect or underweight opportunity costs. However, strong empirical evidence for the size of the underweighting appears to be largely absent from the literature. What are the weights people attach to opportunity costs relative to out-of-pocket costs? In this article, I estimate the weight of opportunity costs in probably the largest economic decision that households make: buying a house. I show that homeowners attach approximately twice as much weight to out-of-pocket costs of their housing consumption than to the opportunity costs associated with this.

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  • Machiel van Dijk, 2017. "Estimating the weight of opportunity costs in housing consumption," Applied Economics, Taylor & Francis Journals, vol. 49(57), pages 5762-5770, December.
    • Handle: RePEc:taf:applec:v:49:y:2017:i:57:p:5762-5770
    DOI: 10.1080/00036846.2017.1340579
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    Cited by:

    1. Groot, Stefan P.T. & Lejour, Arjan M., 2018. "Financial incentives for mortgage prepayment behavior: Evidence from Dutch micro data," Journal of Housing Economics, Elsevier, vol. 41(C), pages 237-250.
    2. Lidia Ceriani & Sergio Olivieri & Marco Ranzani, 2023. "Housing, imputed rent, and household welfare," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 21(1), pages 131-168, March.

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