Loss Aversion and Residential Property Development Decisions in the People's Republic of China: A Semi-Parametric Estimation

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in Asian Development Bank InstituteThe Working Paper series is a continuation of the formerly named Discussion Paper series; the numbering of the papers continued without interruption or change. ADBI's working papers reflect initial ideas on a topic and are posted online for discussion. ADBI encourages readers to post their comments on the main page for each working paper (given in the citation below). Some working papers may develop into other forms of publication.ADB recognizes "China" as the People's Republic of China. The views expressed in this paper are the views of the author and do not necessarily reflect the views or policies of ADBI, ADB, its Board of Directors, or the governments they represent. ADBI does not guarantee the accuracy of the data included in this paper and accepts no responsibility for any consequences of their use. Terminology used may not necessarily be consistent with ADB official terms.Working papers are subject to formal revision and correction before they are finalized and considered published.Asian Development Bank Institute Kasumigaseki Building, 8th Floor 3-2-5 Kasumigaseki, Chiyoda-ku Tokyo 100-6008, JapanTel:+81-3-3593-5500 Fax:+81-3-3593-5571 URL:www.adbi.org E-mail: info@adbi.org AbstractLoss aversion is a core concept in prospect theory that refers to people's asymmetric attitudes with respect to gains and losses. More specifically, losses loom larger than gains. With the capability of loss aversion to explain economic phenomena, some of which are puzzling under expected utility theory, this concept has received significant attention. This study develops a behavioral model of loss aversion to explain the development decisions by residential property developers in the People's Republic of China. Under the leasehold property right system, real estate development has two stages-first to lease land from the government, and then to develop the property according to the lease terms. This presents a unique opportunity to test the presence and effect of loss aversion in real estate development decisions. More specifically, this study determines when the land premium paid by a developer is substantially higher than the market value, whether and how this "paper loss" will affect the pricing of the housing products and development time of the project in future development. We use a sample of land and house transaction records from Beijing to test the hypothesis. This is the first study to use a semi-pa...

Economic Sentiment and Its Impact on the Global Housing Market: A Behavioral Perspective

“…These findings reveal a general reluctance among sellers to adjust prices downward, even in the face of market realities, underscoring the pervasive influence of psychological biases in pricing decisions. Einiö et al (2007) introduce the concept of sales at zero return, shedding light on how initial purchase prices anchor sellers' expectations, a phenomenon further explored by Paraschiv & Chenavaz (2011) and Bao & Meng (2017). Their research in different markets demonstrates how loss aversion and reference point dependence shape pricing and selling strategies, influencing market dynamics and contributing to price dispersion and transaction volumes.…”