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This book aims to provide a comprehensive analysis of the so-called "endowment effect" in the housing market. In a nutshell, the phenomenon of overvaluing things we own which was first conceptualised in 1980 and has since been one of the most studied behavioural biases in economics.
The first chapter presents a systematic review of the literature on the endowment effect in the housing market, together with the identification of research gaps to be filled by other researchers. The second chapter aims to propose a theoretical model explaining the strength of the endowment effect in sales and rental housing markets by primary and secondary markets. The last chapter presents the results of empirical research on the endowment effect in the Polish housing market, testing the model presented in Chapter 2. The chapters can be read together or independently by researchers, students, and policymakers interested in behavioural economics in housing and real estate. For policymakers, the book can be extremely useful as the endowment effect can create friction in the housing market because of a mismatch between the price demands of sellers and buyers, especially in countries where the level of market professionalisation is low (such as Poland). Thanks to the empirical research contained in this book, it will be possible to identify specific market segments where the endowment effect may be particularly elevated - on such segments, policymakers should introduce actions contributing to the elimination of this behavioural bias.
List of contents
Introduction1. The endowment effect and housing studies: A review Chapter overview 1.1. The essence of the endowment effect
1.1.1. The endowment effect definition1.1.2. The origins of the WTA-WTP gap1.1.3. Measurement of the WTA-WTP gap1.2. Literature review
1.2.1. The method1.2.2. Main findings from endowment effect studies: the exchange paradigm1.2.3. Main findings from endowment effect studies: the valuation paradigm1.2.4. Lessons learned and research gaps1.3. Summary
NotesReferences2. Endowment effects in housing markets: Theoretical groundsChapter overview2.1. The essence of the housing market
2.1.1. Housing goods and the housing market2.1.2. Demand and supply for housing2.1.3. Market equilibrium for heterogeneous housing goods2.2. A conceptual model of endowment effects across sales and rental housing markets
2.2.1. The role of reference points 2.2.2. Endowment effects across housing markets in theory2.2.3. Additional considerations2.3. Summary
NotesReferences3. Endowment effects and the Polish housing market: A case study Chapter overview3.1. Characteristics of the Polish housing market
3.1.1. Housing statistics3.1.2. Behavioural biases: A review3.2. Endowment effect identification: Research results
3.2.1. Hypothesis tested3.2.2. Experiment design3.2.3. Econometric framework3.2.4. Results and discussion3.3. Summary
NotesReferencesConclusions
About the author
Mateusz Tomal is an assistant professor in the Department of Real Estate and Investment Economics at the Krakow University of Economics. His research interests include housing markets, real estate economics, behavioural economics, econometric modelling, spatial analysis, and local government efficiency.
