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Real estate list price anchoring and cognitive ability

Sergio Da Silva (Department of Economics, Federal University of Santa Catarina, Florianopolis, Brazil)
Raul Matsushita (Department of Statistics, University of Brasilia, Brasília, Brazil)
Mariana Pereira (Department of Economics, Federal University of Santa Catarina, Florianopolis, Brazil)
Mariê Fontana (Department of Economics, Federal University of Santa Catarina, Florianopolis, Brazil)

International Journal of Housing Markets and Analysis

ISSN: 1753-8270

Article publication date: 11 June 2019

Issue publication date: 27 August 2019

357

Abstract

Purpose

This paper aims to revisit the issue of anchoring effects in real estate markets to consider the current dual-processing theory of mind.

Design/methodology/approach

The effects of high and low anchors in a price estimation task are, thus, explained by both Systems 1 and 2 as these play a key role in the guess of the “correct” list price. The authors also take into account the mediation of overconfidence in the estimates and how confidence relates to cognitive ability. Moreover, the authors nuance the field experiment by considering the decisions taken by professional real estate agents and amateur students alike because experts are expected to be less prone to cognitive biases.

Findings

The large anchoring index of 67 per cent found for the real estate agents suggests these professionals make their judgment unconsciously by priming (and thus, using their System 1), despite being overconfident. In contrast, an even larger anchoring index for the undergraduates (86 per cent) was found, as expected for nonexperts. However, the authors suggest the students’ judgments use their System 2 because they are clueless in their non-anchored estimates and, as result, consider the list prices as a heuristic to deliberately anchor and adjust.

Originality/value

Anchoring effects in real estate markets have not been approached so far by the dual-processing theory of mind.

Keywords

Citation

Da Silva, S., Matsushita, R., Pereira, M. and Fontana, M. (2020), "Real estate list price anchoring and cognitive ability", International Journal of Housing Markets and Analysis, Vol. 12 No. 4, pp. 581-603. https://doi.org/10.1108/IJHMA-08-2018-0060

Publisher

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Emerald Publishing Limited

Copyright © 2019, Emerald Publishing Limited

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