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Social Influence and Household Decision-Making: A Behavioural Analysis of Housing Demand

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Abstract

Housing markets are subject to many interrelated sources of instability on both a microeconomic and macroeconomic scale. Housing decisions of different individuals will be interdependent, generating non-linearities, discontinuities and feedback effects. This paper focuses in on some behavioural factors that contribute to complexity in housing demand. In particular, the impact of herding and social influence is captured using a model incorporating the impact of social information on willingness to pay. This model is tested in an experimental context and this experimental evidence confirms first, that social information has a statistically significant impact and, second, this impact is determined by a person’s individual characteristics including gender and personality traits.

Suggested Citation

  • Baddeley, M., 2011. "Social Influence and Household Decision-Making: A Behavioural Analysis of Housing Demand," Cambridge Working Papers in Economics 1120, Faculty of Economics, University of Cambridge.
  • Handle: RePEc:cam:camdae:1120
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    File URL: http://www.econ.cam.ac.uk/research-files/repec/cam/pdf/cwpe1120.pdf
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    4. Gayer Gabrielle & Gilboa Itzhak & Lieberman Offer, 2007. "Rule-Based and Case-Based Reasoning in Housing Prices," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 7(1), pages 1-37, April.
    5. David Genesove & Christopher Mayer, 2001. "Loss Aversion and Seller Behavior: Evidence from the Housing Market," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 116(4), pages 1233-1260.
    6. George A. Akerlof, 2009. "How Human Psychology Drives the Economy and Why It Matters," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 91(5), pages 1175-1175.
    7. Clark, Andrew E. & Oswald, Andrew J., 1998. "Comparison-concave utility and following behaviour in social and economic settings," Journal of Public Economics, Elsevier, vol. 70(1), pages 133-155, October.
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    Cited by:

    1. Gangopadhyay, Partha & Nilakantan, Rahul, 2021. "Peer effects and social learning in banks’ investments in information technology," International Review of Economics & Finance, Elsevier, vol. 75(C), pages 456-463.

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    More about this item

    Keywords

    Housing markets; herding; social influence; behavioural economics;
    All these keywords.

    JEL classification:

    • D70 - Microeconomics - - Analysis of Collective Decision-Making - - - General
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation
    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand

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