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Measuring behavioural biases affecting real estate investment decisions in India: using IRT

Richa Pandey (School of Management Studies, University of Hyderabad, Hyderabad, India)
V. Mary Jessica (School of Management Studies, University of Hyderabad, Hyderabad, India)

International Journal of Housing Markets and Analysis

ISSN: 1753-8270

Article publication date: 22 May 2018

Issue publication date: 24 July 2018

1189

Abstract

Purpose

This study aims to investigate the behavioural biases influencing the real estate market investing decisions of normal non-professional investors in India.

Design/methodology/approach

As the study involves the behavioural data with polytomous response format, psychometric test- graded response model (IRT approach) was used for the study with the help of STATA 14. Multi-stage stratified sampling was used to collect a sample of 560 respondents. The study used a 14-item scale representing behavioural biases derived from two broad behavioural theories, i.e. heuristics and prospect theories. Sample characteristics were checked using SPSS 20. Pre-required assumptions for IRT (i.e. local independence and unidimensionality) were tested by CFA using AMOS 20.

Findings

Five items, four of which belong to heuristics (anchoring – 2, representativeness – 1 and availability bias – 1) and one belong to prospect theory (regret aversion) are sufficient to measure the behavioural attitude of real estate investors in the Indian scenario. Item discrimination ai ranged from 0.95 to 1.52 (average value 1.29), showing moderate discrimination power of the items. The items have done a pretty good job of assessing the lower level of agreement. For the higher level of agreement, the scale came out to be less precise, with less information and higher standard error of measurement.

Research limitations/implications

As the behavioural biases are often false, the study suggests the investors not to repeat these nasty biases to improve investment strategies. As they are shared and not easily changeable, understanding these biases may also help them in beating the market by acting as “noise traders”.

Practical implications

The traditional price index is incomplete in some essential respects. The inclusion of these behavioural biases into the construction of price index will greatly improve the traditional price index, policymakers should seriously think about it.

Social implications

Shelter is one of the basic needs; a dwelling unit is needed for one to stay in, develop and contribute to economy and society. If investors try to minimise these biases and policymakers keep a track of these while making strategies, mispricing in this sector can be controlled to some extent, which will ultimately help in the well-being of society.

Originality/value

This study contributes to the limited research by investigating the behavioural biases influencing the real estate market investment decisions of normal non-professional investors. It contributes to the lacking academe on real estate market in India. The study has used a psychometric test, i.e. the item response theory, for evaluating the quality of the items.

Keywords

Citation

Pandey, R. and Jessica, V.M. (2019), "Measuring behavioural biases affecting real estate investment decisions in India: using IRT", International Journal of Housing Markets and Analysis, Vol. 11 No. 4, pp. 648-668. https://doi.org/10.1108/IJHMA-12-2017-0103

Publisher

:

Emerald Publishing Limited

Copyright © 2018, Emerald Publishing Limited

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