The Endowment Effect and Housing Studies: The Role of Multiple Reference Points

Author: Mateusz Tomal ID

One of the most researched and proven behavioural biases is the endowment effect, which manifests in people''s higher valuation of goods they own relative to goods they do not. Loss aversion is considered the main cause of the endowment effect because of the assumption that losses loom larger than gains. Whether decisions are framed as either gains or losses depends on the adopted reference point, which is usually taken as current ownership. Mainstream behavioural economics also postulates that the decision-making process involves multiple reference points. This study aims to provide new arguments in favour of the existence of multiple reference points affecting the formation of the endowment effect based on theoretical reflections and empirical evidence from the housing market. A critical review of the literature, as well as an empirical study, revealed that there are multiple reference points in the housing market, the interaction between which leads to the endowment effect.

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Document Type
article
ISSN
2336-2839
Volume / Issue
11 / 2
Pages
184-193
https://doi.org/10.13060/23362839.2024.11.2.576
Date of publication
8.12.2024
Keywords:
housing economics , home ownership

Cite this article

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Tomal, M. 2024. ‘The Endowment Effect and Housing Studies: The Role of Multiple Reference Points.’ Critical Housing Analysis 11 (2): 184-193. https://doi.org/10.13060/23362839.2024.11.2.576