Scandinavian Working Papers in Economics

SSE/EFI Working Paper Series in Economics and Finance,
Stockholm School of Economics

No 718: Mental Accounting in the Housing Market

Johan Almenberg () and Artashes Karapetyan
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Johan Almenberg: Dept. of Economics, Stockholm School of Economics
Artashes Karapetyan: Empirical Institute of Economics and SFI, University of Zürich

Abstract: We report evidence that salience may have economically significant effects on homeowners' borrowing behavior, through a bias in favour of less salient but more costly loans. We outline a simple model in which some consumers are biased. Under plausible assumptions, the bias may affect prices in equilibrium. Market data support the predictions of the model.

Keywords: salience; housing market; household finance; co-op; capital structure

JEL-codes: D12; G14; G21; G32

43 pages, First version: May 10, 2009. Revised: August 28, 2010. Earlier revisions: August 18, 2010, August 18, 2010.

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