Sub-optimal behavioural biases and decision theory in real estate: The role of investment satisfaction and evolutionary psychology

Abstract

Purpose

The purpose of this study is to explain the relationship between behavioural biases, investment satisfaction and reinvestment intention considering the effect of evolutionary psychology. The study believes that biases are not at all times bad; sometimes, biases can assist the individual investor to select the top course of action and allow them to go for the less costly mistakes, thereby helping in achieving satisficing behaviour.

Design/methodology/approach

Data were collected using structured and a close-ended questionnaire from a sample of 560 respondents by using multi-stage stratified sampling method. PLS-SEM was used for preliminary validation of the questionnaire. Mediation model using the structural equation model (SEM) with the help of AMOS 20 was used for the analyses. Pre-requisite assumptions for SEM were checked by using sample characteristics. The study has three constructs with multiple items; hence, the instrument validation was done by measuring the construct validity and reliability using Cronbach’s alpha, exploratory factor analysis and confirmatory factor analysis with the help of SPSS 20 and AMOS 20.

Findings

The study confirms that behavioural biases influence investment decisions in the real estate market. Further, investment satisfaction is found to have a significant and complementary partial mediating effect. The positive mediating effect of investment satisfaction between behavioural biases and reinvestment intention shows that biases are natural tendencies in response to limit to learning which can be explained by evolutionary psychology.

Research limitations/implications

There are chances that the result obtained here is because of myopic decision-making behaviour in which the long-time horizon is not considered and behavioural biases, as well as evolutionary psychology, are adaptive, so the result may change in the long-time horizon, which seeks further investigations. The study talked about the relationship between behavioural biases, investment satisfaction and reinvestment intention; it will be interesting to bring some more constructs in this model, for example, investment intention and reinvestment behaviour; this can deliver a more precise picture in this regard.

Practical implications

Understanding such relationships will help in better clarity about the way investment is made. The study confirms that market behaviour in the real estate market is sub-optimal, which shows that there is an opportunity for attentive investors by trading and gathering on information. Real estate practitioners can get clues from market anomalies and investor phenomena; understanding these may suggest ways to use them in the market.

Social implications

Reforms in the housing sector do not only satisfy one of the basic needs but also leads to holistic economic development. Besides direct contribution, it contributes to social capital.

Originality/value

The study extends the current knowledge base about the relationship between behavioural biases, investment satisfaction and reinvestment intention. This study investigates the behavioural biases influencing the real estate market investment decisions of non-professional investors considering the effect of evolutionary psychology.

Citation

Pandey, R. and Jessica, V.M. (2019), "Sub-optimal behavioural biases and decision theory in real estate: The role of investment satisfaction and evolutionary psychology", International Journal of Housing Markets and Analysis, Vol. 12 No. 2, pp. 330-348. https://doi.org/10.1108/IJHMA-10-2018-0075