Title：Betting on the House: Subjective Expectations and Market Choices
Speaker：Nicolas Bottan，Cornell University
Time：October 20th 2020, 19:30-21:00
About the speaker：
Nicolas is an applied micro-economist who uses behavioral insights to study important policy questions. His research interests fall in the fields of public economics, behavioral economics and development economics. In his work, Nicolas combines different empirical strategies, such as field experiments and natural/policy experiments. His current research focuses on studying the extent to which social comparisons matter and how they shape individual’s behavior. For example, his research shows that social comparisons affect location decisions, and individual effort and performance in the context of sports and education. Nicolas also works on understanding social consequences of public policy more broadly, such as the effect of legalized gambling on crime, and studying the interplay between government and nonprofit service provision.
Home price expectations play a central role in macroeconomics and finance. However, there is little direct evidence on how these expectations affect market choices. We provide the first experimental evidence based on a large-scale, high-stakes field experiment in the United States. We provided information by mail to 57,910 homeowners who recently listed their homes on the market. Collectively, these homes were worth $34 billion. We randomized the information contained in the mailing to create non-deceptive, exogenous variation in the subjects' home price expectations. We then used rich administrative data to measure the effects of these information shocks on the subject's market choices. We find that, consistent with economic theory, higher home price expectations caused the subjects to delay selling their homes. These effects are statistically highly significant, economically large in magnitude, and robust to a number of sharp checks. Our results indicate that market choices are highly elastic to expectations: a 1 percentage point increase in home price expectations reduced the probability of selling within six months by 2.45 percentage points. Moreover, we provide evidence that this behavioral elasticity would be even higher if it were not for the presence of optimization frictions.