Lecture 6 Biases in Real Estate Valuation Flashcards Preview

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Flashcards in Lecture 6 Biases in Real Estate Valuation Deck (8)
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1
Q

Money Illusion

A

the failure to perceive that the dollar, or any other unit of money, expands or shrinks in value
the tendency to think in terms of nominal rather than real values

2
Q

Nominal Loss Aversion

A

The mix of Money illusion and loss aversion

3
Q

What is the Natural reference point for a seller?

A

Their previous nominal purchase price

4
Q

Disposition effect

A

the tendency of investors to sell assets that have increased in value, while keeping assets that have dropped in value

5
Q

What are the findings of Genesove & Mayer (2001; ctd)?

A
  • Sellers facing a nominal loss set higher asking prices: 25-35% of the nominal difference between expected selling price and purchase price
  • No significant effect for real losses on asking prices
  • Sellers respond to nominal rather than real losses due to nominal loss aversion
    (people are less likely to sell if a nominal loss is faced)
6
Q

Contrast effect/Ebbinghaus illusion

A

The same circle appears large when surrounded by small circles and small when surrounded by large ones

7
Q

Background Contrast Effect

A

The tendency to prefer x over y will be enhanced if the decision maker encounters other comparisons in which the exchange rate between price and quality is higher than that implied by x and y

8
Q

What does the back ground contrast effect mean in terms of commuting (woon-werk verkeer)

A

People are more willing to accept long commute if they come from city where median commute is longer