Loss Aversion and Reference-Dependent Decision Making: Evidence from the Housing Market

This study provides evidence of loss aversion and reference-dependent decision-making in housing markets. We document an asymmetric response of local housing transactions to land sale shocks: sales near auction sites fall significantly after cold land auctions but remain largely unchanged after hot ones. These results are robust to parallel trend and PSM-DID tests and hold when using alternative measures of land market hotness. To address possible information leakage, we exclude observations from one month before each event and find even stronger effects, reinforcing the asymmetry. The response is most pronounced in areas with larger land parcels sold. Overall, the findings are broadly consistent with prospect-theory-based loss aversion and adaptive reference dependence, where sellers respond more strongly to unfavorable market signals than to favorable ones.