Papers - Framed

Jay R Corrigan, Matthew C Rousu

Cited by*: 16 Downloads*: 1

Recent evidence suggests that participants' misunderstanding of experimental auction mechanisms can systematically bias auction results. We present a simple technique for testing whether field auction participants fully understand the demand-revealing nature of the auction mechanism and, by extension, whether auction bids provide an unbiased estimate of participants' willingness to pay.

Iwan Barankay, Magnus Johannesson, John A List, Richard Friberg, Matti Liski, Kjetil Storesletten

Cited by*: 1 Downloads*: 1

No abstract available

Michael J. Seiler

Cited by*: 2 Downloads*: 0

This study identifies a severe gap between the financial backlash borrowers believe awaits them after strategic mortgage default and the reality that lenders rarely pursue deficiency judgments. This coupled with the social norm finding that borrowers widely view strategic default as immoral, leads us to recommend lenders and policymakers seeking to stem the tide of defaults to pursue a policy of informational opacity. We make several recommendations for how to carry out such a policy as well as what might need to change in society before the alternative policy of informational transparency becomes ideal.

Michael J. Seiler

Cited by*: 4 Downloads*: 0

Inequity Aversion has long been applied in a game theoretic setting to explain that individuals are willing to sacrifice personal wealth in order to financially penalize players they perceive to be acting selfishly or unfairly. I apply inequity aversion to strategic mortgage default decisions and find that individual homeowners (as well as a second sample of professional mortgage lenders) have a differential stated willingness to walk away from their mortgage based on the perceived characteristics of their lender. Importantly, these significant differences can be removed even with extremely modest loan modifications. Finally, I document that regular homeowners and even professional lenders do a poor job differentiating between the owner of their loan and the servicer of their loan. This is particularly troubling given the extreme misconception of their bank's true character. As a result, much of their willingness to penalize is misplaced resulting in an unnecessary number of strategic mortgage defaults.

Michael J. Seiler

Cited by*: 0 Downloads*: 0

Defaulting on a mortgage is widely viewed as being immoral, but no prior study has examined the intervening roles of financial outcome and default intent. We find that the public is significantly more accepting of a defaulting borrower who earns a zero or negative return on his investment than one who earns a positive return. This moral viewpoint changes significantly when the default is strategic in nature. Defaulters are judged significantly less harshly by those who more so blame the lender for the current financial crisis, those who have previously strategically defaulted, and males. When asked to suggest a "morally appropriate" settlement offer to lenders to resolve the distressed debt, beyond the financial outcome and default intent remaining significant, we further find that those who more so blame the lender, those view their home as more of an investment rather than a consumption good, those who have previously strategically defaulted, those with lower income levels, and minorities suggest significantly lower settlement offers.

David M Harrison, Mark A. Lane, Michael J. Seiler

Cited by*: 4 Downloads*: 0

This study examines the herding behavior of individuals in the context of their willingness to strategically default on a mortgage based on the (falsely) observed behavior of those around them. We find that homeowners are easily persuaded to follow the herd and adopt a strategic default proclivity consistent with that of their peers. Herding behavior is stronger when a Maven, or thought leader, is involved and weaker when the person finds strategic default to be morally objectionable. Homeowners appear to herd more for informational gains rather than for social reasons, and do not herd differentially based on signal strength. In a robustness check using a sample of real estate professionals, the strong mimetic herding result continues to hold.

James Andreoni, John A List

Cited by*: 0 Downloads*: 0

No abstract available

Mark A. Lane, Michael J. Seiler, Vicky L Seiler

Cited by*: 0 Downloads*: 0

This study is the first to examine the widely debated merits of staging a home for sale. We find that both homeowners and real estate agents believe staging conditions (furnishings and wall color) will significantly impact homeowners' willingness to pay for a property. Our results show that homeowners rationally do not significantly differ in their valuations based on staging conditions. However, staging conditions do influence the process, as we find a neutral wall color and good furnishings do significantly influence a buyers' perceived liability and overall opinion of the home. While these are a necessary condition for purchase, staging is not enough to result in a higher selling price.

Eli Beracha, Michael J. Seiler

Cited by*: 0 Downloads*: 0

In this study, we examine whether homebuyers favor homes associated with just below pricing strategies or those with rounded prices (e.g., $199,900 vs. $200,000). The inclination for just below pricing allows sellers that use just below pricing to set a higher asking price without driving away potential buyers. Rounded priced homes, on the other hand, sell significantly faster and at a smaller discount from list price compared with just below priced homes. We find that the just below pricing strategy yields the highest transaction price relative to the true underlying home value. This suggests sellers exploit buyers' preference for just below priced homes with a higher initial listing price that outweighs the lower discount and shorter time on market associated with similar round priced homes, making just below pricing the more effective pricing strategy.

John A List

Cited by*: 12 Downloads*: 0

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