Influence of emotions on loss aversion. An empirical analysis on the housing market

Abstract

The effects of affective states either emotions or moods are proven to influence decision making and judgment, while loss aversion is one of the most robust findings of behavioral economics. Although there are indications that loss aversion is originated by emotions, there is little known about the combination. The effects of (nominal) loss aversion are clearly visible at the housing market. The effects of an emotional episodes in a person’s life could therefore influence his perception about loss he might has to take when moving from one property to another. Using an online survey experiment with both general public and professional real estate agent, I show that amateur participants induced with sadness show more satisfaction when evaluating a housing transaction with a loss. Although professionals are not found significantly different, split samples indicate that professional real estate agents are less or not influenced by the emotions.