Working Paper Series
Mental Accounting in the Housing Market
() and Artashes Karapetyan
Abstract: We use a survey to identify a consumer bias with regard to
different sources of debt-financing. Less salient debt may generate
psychological benefits. This should be weighed against the possible
economic costs of a sub-optimal capital structure; but low levels of
financial literacy make it unlikely that all households perceive the full
economic costs. As a result there is a bias in favour of less salient debt.
In a market with limited scope for arbitrage this consumer bias is likely
to generate inefficiencies. We examine such a market in both theory and
practice. The predictions of our model are given strong support by market
Keywords: Household Finance; Mental Accounting; Co-op; Capital Structure; (follow links to similar papers)
JEL-Codes: D12; G14; G21; G32; (follow links to similar papers)
44 pages, June 4, 2009
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