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Mental Accounting in the Housing Market

Author

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  • Almenberg, Johan

    (Research Institute of Industrial Economics (IFN))

  • Karapetyan, Artashes

    (Empirical Institute of Economics and SFI)

Abstract

We use a survey to identify a consumer bias with regard to different sources of debt-financing. Less salient debt may generate psychological benefits. This should be weighed against the possible economic costs of a sub-optimal capital structure; but low levels of financial literacy make it unlikely that all households perceive the full economic costs. As a result there is a bias in favour of less salient debt. In a market with limited scope for arbitrage this consumer bias is likely to generate inefficiencies. We examine such a market in both theory and practice. The predictions of our model are given strong support by market data.

Suggested Citation

  • Almenberg, Johan & Karapetyan, Artashes, 2009. "Mental Accounting in the Housing Market," Working Paper Series 798, Research Institute of Industrial Economics.
    • Handle: RePEc:hhs:iuiwop:0798
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    References listed on IDEAS

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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Compartmentalized thinking in personal finances
      by Economic Logician in Economic Logic on 2011-05-16 19:29:00

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    Cited by:

    1. Diego Salzman, 2013. "Behavioural Real Estate," ERES eres2013_334, European Real Estate Society (ERES).
    2. Diego A. Salzman & Remco C.J. Zwinkels, 2013. "Behavioural Real Estate," Tinbergen Institute Discussion Papers 13-088/IV/DSF58, Tinbergen Institute.
    3. Eva M. Berger & Felix Schmidt, 2017. "Inattention in the Rental Housing Market: Evidence from a Natural Experiment," Working Papers 1716, Gutenberg School of Management and Economics, Johannes Gutenberg-Universität Mainz, revised 06 Sep 2019.

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    More about this item

    Keywords

    Household Finance; Mental Accounting; Co-op; Capital Structure;
    All these keywords.

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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