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  5. Betting on the House: Subjective Expectations and Market Choices

American Economic Journal:
Applied Economics

ISSN 1945-7782 (Print) | ISSN 1945-7790 (Online)

Betting on the House: Subjective Expectations and Market Choices

  • Nicolas Bottan
  • Ricardo Perez-Truglia
American Economic Journal: Applied Economics (Forthcoming)

Abstract

Home price expectations play a central role in macroeconomics and finance. However, there is little direct evidence on their effect on market choices. We provide causal evidence using a large-scale, high-stakes field experiment in the U.S. We sent letters about home price trends to 57,910 homeowners who listed their homes. These letters contained randomized information creating non-deceptive, exogenous variation in home price expectations. Consistent with economic theory, higher home price expectations reduced selling probability. Behavior was highly elastic: a 1 percentage point increase in expectations caused a 2.63 percentage point reduction in probability of selling the property within 12 weeks.

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