Reference dependence in the UK housing market

Abstract

The study of reference dependence in housing markets is of practical importance due to the unusual characteristics of property transactions, such as high information asymmetry caused by many individuals’ lack of experience in housing markets. The overall low transaction frequency and general illiquidity of housing markets can exacerbate and reinforce behavioural anomalies such as reference dependence. The knowledge gained through an empirical investigation in the UK housing market can assist in the understanding of these behavioural biases. By conducting an online experiment at a UK online panel data platform, we identify the presence of reference dependence in the UK housing market, and the extent to which they are caused by both historical and recent prices. The influence of expectations and social norms is also investigated in this novel context. The findings of this study pave the way for reliable economic modelling of such anomalies and a better understanding of behaviours in the housing market.