My house is worth more than yours

Today, Dan Ariely’s Predictably Irrational Blog links to an interesting study from The study chronicles a very sharp bias present in real estate “where despite the evidence that 77% of U.S. homes actually declined in value in the past year, 62% of homeowners believe their own home’s value has increased or stayed the same.” Our role as value investors is to be realistic even when we would prefer optimistic outcomes. Clearly most people are not rational investors or even home owners. If you know of anyone worried by the real estate crises, forward them this article.

Article Excerpt (Via Predictably Irrational Blog)

Can anyone get over this egocentric bias of looking at our own homes from the perspective of our own preferences? I suspect it is very hard to do, and maybe the only people who can do it well are those who are unable to tailor their homes (maybe due to some condo regulations). These people are going to be less susceptible to the “Not My House! Sentiment” and therefore understand more quickly that their values of their homes are going down. This will probably earn them some depressing sleepless nights thinking about this, but they might also be able to make better decisions about their homes.

Click Here for Predictably Irrational Piece

Click Here for the Original Study

About Miguel Barbosa

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31. August 2008 by Miguel Barbosa
Categories: Behavioral Economics, Curated Readings | Leave a comment

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