The Winnerís Curse, Price Anchors and Bidder Characteristics: Evidence from Successful Residential Real Estate Auctions
||Ryan, Paul; Clare Branigan, Cal Muckley
||The Winnerís Curse, Price Anchors and Bidder Characteristics: Evidence from Successful Residential Real Estate Auctions
||21st Annual European Real Estate Society Conference in Bucharest, Romania
||This paper explores the impact of behavioral biases, specifically the winnerís curse and anchoring and insufficient adjustment on auction outcomes in the Dublin residential real estate market in the period immediately preceding the peak of what became the biggest property crash in recent history in the developed world. In addition, we investigate whether the incidence of these biases is conditioned by two bidder characteristics, his/ her gender and whether the winning bidder is experienced in the residential real estate market. We find that bidders do not shade their auction bids to avoid the winnerís curse, and that auction outcomes are driven by bidder anchoring on the advertised auction guide price, and also the initial auction bid announced by the auctioneer, and are less influenced by the comparable sales prices of similar properties or prices derived from a hedonic asset pricing model. In addition, we find, contrary to expectations, that female bidders are no less prone to behavioural biases in decision making than their male counterparts and that winning experienced bidders, despite their level of expertise, tend on average to pay more for comparable properties than their less experienced counterparts. Our results in aggregate can be interpreted as being consistent with a market where behavioral biases play a part in driving auction prices and are consistent with the arguments made by Shiller (2007, 2008) in his analysis of the US sub- prime crisis.
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||D : Housing Markets & Economics
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