The housing market: Consumers struggle to get the price right

January 15, 2013

Consumers systematically mispredict both the selling and purchase prices of other consumers due to a lack of cognitive and emotional connection, according to a new study in the Journal of Consumer Research.

"As sellers, consumers fail to appreciate the extent to which endowment and the prospect of giving up an object and not getting to enjoy its benefits influence other owner valuations. On the other hand, as buyers, consumers fail to realize the extent to which lack of ownership and the prospect of giving up money to purchase an object impact other buyer valuations," write authors Didem Kurt (Boston University) and J. Jeffrey Inman (University of Pittsburgh).

In one study, a group of consumers was given coffee mugs (owners) and asked to predict how much others would ask for the mug. Another group who were not given mugs (buyers) was asked to estimate how much others would pay for the mug. Both groups failed to predict the prices of others in the same role. Owners underestimated the average selling price demanded by other owners, whereas buyers overestimated the average price offered by other buyers by over 20%.

These can have important . For instance, when demand for homes is high in an area, buyers may overestimate how much others are willing to pay for a particular home and place a very high bid, resulting in overpaying. Buyers will suffer from reduced satisfaction with a transaction when they discover that others are actually willing to pay less (or have already paid less) for the same or a similar object. Or, when selling used items of sentimental value, underestimating the selling prices of other owners may lead an owner to sell at a lower price, reducing not only the of the sale but also decreasing the seller's overall satisfaction.

"Consumers rely on both their calculations and feelings when valuing objects for sale. And, since consumers inaccurately assess others' cognitive and , they mispredict how much others value objects. However, the accuracy of their predictions can be improved by helping them appreciate similarities between themselves and others who are in the same situation," the authors conclude.

Explore further: You can look -- but don't touch

More information: Didem Kurt and J. Jeffrey Inman. "Mispredicting Others' Valuations: Self-Other Difference in the Context of Endowment." Journal of Consumer Research: June 2013.

Related Stories

You can look -- but don't touch

January 7, 2009

Consumers are often told that if they break an item, they buy it. But a new study suggests that if they just touch an item for more than a few seconds, they may also end up buying it.

Early product launches: How will consumers respond?

April 19, 2011

A new study in the Journal of Consumer Research explains why consumers often indicate they are willing to pay more for a product that is not yet available—but are reluctant to pay that price when the product is ultimately ...

Selling on eBay? Get higher bids with a red background

July 17, 2012

The color red influences consumers to become more aggressive in online auctions and affects how much they are willing to pay for products as varied as video game consoles and Florida vacation packages, according to a new ...

Recommended for you

Can genes make us liberal or conservative?

August 4, 2015

Aristotle may have been more on the money than he realised in saying man is a political animal, according to research published Wednesday linking genes with liberal or conservative leanings.

Model shows how surge in wealth inequality may be reversed

July 30, 2015

(Phys.org)—For many Americans, the single biggest problem facing the country is the growing wealth inequality. Based on income tax data, wealth inequality in the US has steadily increased since the mid-1980s, with the top ...

Earliest evidence of reproduction in a complex organism

August 3, 2015

Researchers led by the University of Cambridge have found the earliest example of reproduction in a complex organism. Their new study has found that some organisms known as rangeomorphs, which lived 565 million years ago, ...

0 comments

Please sign in to add a comment. Registration is free, and takes less than a minute. Read more

Click here to reset your password.
Sign in to get notified via email when new comments are made.