Behavioral Biases in Housing Markets - The Case of Oslo

This thesis highlights findings from behavioral economics in the context of real estate markets, and the housing market in particular. Behavioral biases such as loss aversion, anchoring, herding, investor sentiment, charm pricing and round numbers bias are addressed. In the empirical part, the Oslo housing market for freeholder dwellings in the period of 2006 to 2013 is analyzed. The value evaluations of professional surveyors are found to be good estimates of a dwelling’s market worth, however they are lower than final sales prices on average, and might not sufficiently incorporate all available information. I find widespread clustering of all price measures in the data; value evaluations and final sales prices cluster at round numbers, asking prices cluster at charm prices. The role of round numbers as focal points is considered, and estimated coefficients show that a million kroner focal point attracts 44% more sales than other 50 000kr price points. The relative effects of different focal points appear to be stable across time. However, the pull of mass is stronger from above than below the focal point, which might be interpreted as a pull from the seller’s side of the distribution. Finally, different designs of asking prices are considered. The data reveals that round number pricing, and setting the asking price equal to value evaluation are the most favorable designs in terms of final sales price. Charm pricing and ”under-pricing” either has no, or a negative effect on the final sales price