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Using Prospect Theory to Better Understand the Impact of Uncertainty on Real Estate Negotiations

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  • Artie Zillante
  • Dustin C. Read
  • Michael J. Seiler

Abstract

Economic experiments are used to evaluate the impact of uncertainty on negotiations involving the assembly of land for real estate development. Consistent with the tenets of prospect theory, the results suggest landowners act to mitigate risk, as opposed to maximize gain, when the duration of negotiations are undefined and they face disadvantageous fallback positions in the event they do not reach an agreement to sell their properties. The experiments contribute to the study of behavioral economics by offering further evidence of psychological biases that can encourage individuals to act in ways that are inconsistent with neoclassical economic theory.

Suggested Citation

  • Artie Zillante & Dustin C. Read & Michael J. Seiler, 2019. "Using Prospect Theory to Better Understand the Impact of Uncertainty on Real Estate Negotiations," Journal of Real Estate Research, Taylor & Francis Journals, vol. 41(1), pages 75-106, January.
    • Handle: RePEc:taf:rjerxx:v:41:y:2019:i:1:p:75-106
    DOI: 10.1080/10835547.2019.12091521
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