Behavioural Biases on Residential House Purchase Decisions: A Multi-Criteria Decision-Making Approach

Abstract

In this study, we examine if behavioural biases, such as framing effects, escalation of commitment, and overconfidence are present when residential property purchasers are choosing between alternative properties. To accomplish same, we use a Multi-Criteria Decision-Making (MCDM) approach to examine the behaviour of property purchasers in Dublin during the property boom of 2005.The study was designed using a case study approach and the participants used a Multi-Criteria Decision-Making analysis tool to aid in their selection between alternative properties. The decision tool that was used is Direct-Interactive: i.e., the Decision-Maker gives scores and weights directly and is able to adjust them during the process. It also uses Structured-Criteria, i.e. it tracks elements of the decision to specific disaggregated criteria of the decision-maker.This research finds that using a decision tool provides better decisions as was expected from the method, however, a subset of property buyers resisted applying the tool to make non-rational choices. This indicates how strong behavioural biases can be and how influencing their affect is, even when making large monetary decisions.In conclusion, when a decision-making tool is introduced to enable property purchasers to improve their decision-making capability, a subset of property buyers may resist applying the tool to let their behavioural biases potentially override rational decision-making.

Text Pre-Processing For The Frequently Mentioned Criteria From Online Community Homebuyer Dataset

“…The identification of the right criteria has been acknowledged as the most crucial stage that highly influenced the housing purchasing decision making [14], [22]- [26]. As a result, research on residential purchasing criteria has developed over the last few decades [5], [10]- [13]. Based on the literature review, various residential criteria to be relevant to the homebuyers.…”

“…The value of unsold residential projects was due to indiscriminate buildings by the developer, lack of market studies, and financial feasibility studies. Thus, identification of the right set of residential purchase criteria is necessary to reflect the market demand from homebuyers [5], [10]- [13]. This study outcome is significantly beneficial to homebuyers, real-estate practitioners, developers, government policymakers, and as well as an academic institution.…”

“…The decision also is regarded as one of the most crucial decisions for home buyers as the decision has long-term influence on their life due to several reasons. For example, According to [5] the decision is relatively related to one of the largest investments for homebuyers approximately three or four of annual income that led to the long-term financial commitment. Moreover, most of the developers are required 60%-70% of total transaction as advanced payment before the residential project begin.…”

“…Thus, numerous previous studies have been performed to assist homebuyers in the residential purchase decision-making process. These studies mostly focused on the development of decision-making tools [5], [10]- [13], and most identification and prioritizing of residential purchase criteria [6], [14]- [19].However, this paper orbit around criteria influences the residential purchase decision-making process. Many criteria have implications during the purchase of residential such as a house, apartment, condominium, and flat.…”

“…Furthermore, past research has proven that housing purchasing should consider numerous criteria and there are no fixed criteria for buyers available [1], [7], [11], [20], [21]. From the homebuyers viewpoint, a price criterion is no longer the main objective in residential purchasing, multiple other criteria need to be taken into consideration in comparing and assessing alternatives [5].…”