Loss aversion and focal point bias: Empirical evidence from housing markets

Most research documenting correlation between behavioral biases use survey or experimental data, often focusing on related biases. We test whether evidence of loss aversion in housing sales prices is stronger among individuals who exhibited focal point tendencies when selecting their mortgage amount at purchase, allowing for market impacts of both behavioral biases in high-stakes contexts. We find a strong positive relationship between the effects of facing a loss on eventual sales prices and whether sellers selected a round mortgage amount during their initial purchase. Further, we show that selecting round mortgage amounts is persistent within borrowers over time.