Mental Accounting and False Reference Points in Real Estate Investment Decision Making

Seiler, Michael J.; Seiler, Vicky L.; Lane, Mark A.

doi:10.1080/15427560.2012.653293

Cited by 41 publications

(28 citation statements)

References 14 publications

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“…A reference point is a subjective individual estimation and, as such, can lead to its own complications. For example, the stagnation of the housing market after the 2008 great recession has been blamed on people's false reference points (Seiler et al 2008(Seiler et al , 2012, that is, people perceive the value of their houses at pre-recession prices, instead of the current price; thus, they are unwilling to reduce the sales price to a reasonable value in terms of fair market value.…”

Section: Prospect Theorymentioning

confidence: 98%

An improvement selection methodology for key performance indicators

et al. 2016

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Key performance indicators (KPIs) are critical measures for determining the health of a manufacturing plant in relationship to the plant's goals. In today's competitive environment, manufacturers cannot be careless about their business; in fact, they must ensure that their KPIs are effective and use them to make improvements when necessary. This paper describes a method for suggesting improvements to a manufacturer's KPIs, based on the results achieved from a workshop to score the KPI on a number of predefined criteria. The approach uses a prospect theory approach to weight the scoring. Different problem formulations were derived that allow for both recommendations for improvements and the recommendations for disinvestments to over-performing KPIs. The authors applied the developed approach to two workshop outputs, each from independent manufacturers, and the results highlighted the significant difference between the two manufacturers in terms of improvement priorities and KPI assessment. The optimal improvement suggestions were compared to those found through a fast heuristic. It was determined that given the underlying assumptions of the approach that the heuristic solutions were just as adequate as the optimal ones.

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Section: Prospect Theorymentioning

confidence: 98%

An improvement selection methodology for key performance indicators

et al. 2016

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“…Mental accounting theory has been used to explain irrational behavior in a wide array of settings, such as price perceptions and consumer behavior (Heath, Chatterjee, & France, 1995;Moon, Keasey, & Duxbury, 1999), the use of different payment methods (Helion & Gilovich, 2014;), lottery choices (Langer & Weber, 2001), stock market investments (Barberis & Huang, 2001;Lim, 2006), real estate investments (Seiler, Seiler, & Lane, 2012), and credit application (Ranyard et al, 2006). However, keeping mental accounts often serves to facilitate money management.…”

Section: Mental Accountingmentioning

confidence: 99%

Mental accounting of income tax and value added tax among self-employed business owners

Olsen

Kasper

Muehlbacher

et al. 2019

Journal of Economic Psychology

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Mental accounting describes a series of cognitive operations that help organize financial activities and facilitate money management. Self-employed taxpayers who make use of a separate mental account for future income tax payments or collected value added tax (VAT) might find it easier to declare their taxes correctly than taxpayers who do not. This study used a questionnaire to investigate whether selfemployed taxpayers (N = 350) use mental accounting to manage their income tax and VAT obligations, whether mental accounting relates to tax knowledge, business and personality characteristics, and to what extent mental accounting is related to intended tax behavior. Our results reveal that some taxpayers mentally segregate taxes from turnover (segregators) while others do not (integrators). We found small differences in mental accounting between income taxes and VAT. Moreover, confirmatory factor analyses suggested that tax knowledge and mental accounting are distinct constructs. Segregation of taxes was related to lower impulsivity and more positive attitudes toward taxation. Individuals who stated they segregate taxes due from turnover more often claimed to run financially prosperous businesses. Mental accounting was not related to intentions of evading taxes, but individuals with higher mental accounting scores reported more pronounced levels of tax planning. While our research design does not allow drawing causal inferences, these findings could suggest that increasing self-employed taxpayers' ability to organize their financial activities might be a promising strategy to strengthen the competitiveness of their businesses.

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“…They include these aspects along with regret aversion and tax consideration. Seiler and Lane (2010) find that only 6.8% respondents show complete rationality while 74.9% are more willing to sell as the return on investment rises. They find that an S-shaped disposition curve does not hold for all investors and 7.3% respondents show a U-shaped curve.…”

Section: Traders' Psychologymentioning

confidence: 94%

“…Baker et al (2007) show strong response of consumption to the receipt of dividends once effects of stock return is controlled for. Investors in the real estate mitigate regret aversion for losses in an asset class by a higher return on overall portfolio as if they feel better off (Seiler &Lane, 2010). have shown that mental accounting significantly influences stocks' asset prices and in equilibrium frameworks from "individual stock accounting" to "portfolio accounting", stocks' returns falls, their volatility diminishes, they becomes more inter-correlated while in the cross section huge premium as argued in the equity premium puzzle disappears (p. 1249).…”

Section: Traders' Psychologymentioning

confidence: 99%

Stocks’ pricing dynamics and behavioral finance: A review

Sinha¹

2015

10.5267/j.msl

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In a brief review of the literature on stocks' pricing, the study shows that information vis-à-vis noise serves critical roles in the equilibrium process. It is dynamic in nature and there are different infiltrating aspects from the standard finance to behavioral finance points of views. The aspects of market efficiency, fundamental risk, noise traders' risk, and implementation costs make the stock markets noisy and thereby, limit the arbitrage opportunity of informed traders. Investors' psychological bases viz., belief and preferences contribute more in the equilibrium process. Beliefs include representativeness, conservativeness, and anchoring, availability biases, optimism and wishful thinking, overconfidence, and herd behavior tendency on the part of the investors. On the preferences, investors are influenced by disposition effect, prospects based on reference points, mental accounting, ambiguity aversion, and self control.The study explores the empirical literature also and reviews the six puzzles in the standard finance. Finally, the work identifies a few research gaps to be addressed in the literature.Growing Science Ltd. All rights reserved. 5

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Mental Accounting and False Reference Points in Real Estate Investment Decision Making

Cited by 41 publications

References 14 publications

An improvement selection methodology for key performance indicators

An improvement selection methodology for key performance indicators

Mental accounting of income tax and value added tax among self-employed business owners

Stocks’ pricing dynamics and behavioral finance: A review

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