First-home buyers and herding behavior in Surabaya, Indonesia

Abstract

Purpose This study aims to determine the causality of herding which was traced down to social and normative influences from first-home buyers represented by undergraduate students. Design/methodology/approach The Perception Alignment Hypothesis was used in this experimental research, and was conducted on a sample of 125 undergraduates studying finance representing first-home buyers. The experiment provides the subjects property brochures in Surabaya to appraise a value that they see fit for purchase. The subjects were given both social- and normative-induced treatments separately using information cascade, and their valuation shifts were recorded. Their valuations were then divided into three sections under the treatment groups, consisting of initial, “social’ and “normative’ valuations. Findings In contrast to previous findings, the results showed that first-home buyers succumbed to both social and normative influences, causing them to herd. Further analysis of the credibility of information was conducted and it showed that the undergraduates were only prone to social influence, whereas other aspects regarding normative influences must be further researched. Practical implications The decline of homeownership on a global scale is concerning, especially when 60% of the market represents young adults under the age of 35. This implies that both the government and property developers may need to enact strict measures to regulate property purchases. Originality/value This is the first experimental study on herding of Surabaya, Indonesia, mainly focusing on human behavior and information cascade. Thus, this study could be a viable reflection to future policies in Indonesia being made to answer actual demands in the residential market.

Heuristics and cognitive biases in the housing investment market

“…Wang (2013) also showed that real estate prices depend on group psychology and market behavior, concluding that herd behavior is present in property market prices’ fluctuations. Susanto and Njo (2020) confirmed the existence of herd behavior in a study of first-home buyers in Indonesia. Tan (2021) investigated the boundedly rational behaviors that affect the housing choice finding evidence of the endowment effect, loss aversion and herding, which affect the decision-making process.…”

Drone Readiness in the Indonesian Construction Industry

“…Surabaya is located on the island of Java, the world's most populous island, where more than 50% of the Indonesian population lives. As the second largest city after the capital Jakarta, Surabaya metropolitan area is home to nearly 10 million people, and the growing population stimulates the growth of the construction sector (Susanto and Njo, 2019). In previous research, the study of the construction industry in Surabaya was considered valuable for understanding the overall construction industry practice in Indonesia (Aulady, et al, 2021).…”

The Influence of Neuroticism Personality Traits on Herding and Overconfidence in Investment Decision Making

“…Neuroticism personality trait drives investor to fear of other people making mistakes, so they avoid herd instead. The herding behavior apparently also accounts the credibility of information and how much trust they put in them (Susanto & Anastasia, 2019). This explains why neuroticism have negative effect on herding behavior because people with high level of neuroticism does not believe other people decision and think they are not credible, so they do not follow other people.…”

“…Having moderating variables can also give more explanation on the relations. For example is information sources used to make investment decision since according to Susanto & Anastasia (2019), credibility affect herding behavior.…”