Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/197647 
Year of Publication: 
2017
Series/Report no.: 
Working Paper No. 2017:10
Publisher: 
Uppsala University, Department of Economics, Uppsala
Abstract: 
Do behavioral biases a affect prices in a high-stake market? We study the role of left digit bias in the purchase of an apartment, one of the most important assets in a household's portfolio. Left-digit bias is the inability to fully process digits after the first, perceiving prices just below a round number (such as $ 3.99) as cheaper than their round counterpart ($4). We start by documenting that apartments listed at just-below asking prices are sold at a 3-5% higher final price after an auction. This effect appears not to be driven by i) differences in observable characteristics; ii) differences in real estate agents' behavior; or iii) institutional characteristics of the market. We show that apartments using just-below prices attract more bidders and bids, leading to higher competition and to a higher final price. Our results suggest that inattentive buyers might be losing roughly half a year of disposable income.
Subjects: 
Housing market
auctions
inattention
first-digit bias
JEL: 
R31
D44
D83
C78
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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