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Title: The Role of Anchoring and Loss Aversion with Evidence from the Singapore Housing Market.
Authors: Yuen Wing Shan
Keywords: Anchoring, Loss Aversion, Housing
Issue Date: 6-Nov-2017
Citation: Yuen Wing Shan (2017-11-06). The Role of Anchoring and Loss Aversion with Evidence from the Singapore Housing Market.. ScholarBank@NUS Repository.
Abstract: Using data on Singapore's condominium market, this paper reveals interesting findings on two cognitive biases: anchoring and loss aversion. Individuals who anchor on an initial value typically provide estimates that are biased towards the anchor while losses are more salient than gains to loss-averse individuals (Kahneman & Tversky, 1974; Kahneman & Tversky, 1979). The anchoring phenomenon is observed in the market, with a positive bias towards the anchor that is equivalent to 8.5 percent of the difference between the previous sale price and the hedonic prediction of current sale price. On the other hand, the effect of loss aversion is only observed when the hypothetical reference point was a combination of market price and previous price. These findings suggest that individuals are susceptible to cognitive biases when making judgments under uncertainty, explaining the seemingly irrational trends observed in real estate markets.
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