Do Sunk Costs Affect Prices in the Housing Market?

• 成果类型: Article
• 署名作者: Ratnadiwakara, Dimuthu; Yerramilli, Vijay
• 署名单位: Louisiana State University System; Louisiana State University; University of Houston System; University of Houston
• 刊物名称: MANAGEMENT SCIENCE
• ISSN/ISSBN: 0025-1909
• DOI: 10.1287/mnsc.2021.4285
• 发表日期: 2022
• 页码: 9061-9081
• 关键词: Keywords; sunk-cost fallacy; Housing market; listing price; property tax

摘要

We use a unique feature of California's property tax system to empirically identify the causal effect of selling homeowners' past property tax payments on their choice of listing price. Although past property taxes are sunk costs, we find that they have a significant positive effect on the sellers' choice of listing price, which is inconsistent with rational models of decision making. This effect is stronger when sellers expect to sell at a loss relative to their purchase price and for properties whose value is harder to assess. The effect of property taxes on listing price is mostly transmitted to the selling price, which is consistent with the idea that buyers use listing prices as anchors to assess property values. Overall, our results suggest that sunk costs affect prices in the housing market.