Anchoring bias in house purchasing decisions: A quantile regression perspective

This study examines the existence and influence of anchoring bias, evaluating a priori arguments and evidence from the real estate market indicating the effect of investor sentiment on house purchasing decisions. Based upon a unique dataset which provides the complete histories of transactions, housing characteristics and investor attributes in the real estate market, we investigate whether the market participants are likely to fall into the anchoring trap. The quantile regression allows us to show the difference between high-priced and low-priced dwelling units on investor's cognitive biases. We find that anchoring is a common phenomenon, regardless of gender; however, sophisticated homebuyers are less susceptible to the anchoring bias. Male homebuyers faced with higher-priced real estate exhibit higher levels of anchoring, and homebuyers faced with higher systemic uncertainty exhibit higher levels of anchoring also when faced with high-priced real estate. In conclusion, anchoring bias due to heuristic thinking plays an important role in the face of uncertainty in real estate purchasing decisions.