Application of Behavioral Finance Theories in Residential Property Market
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The residential property market plays a vital role in the global economy, influencing both individual wealth and broader financial stability. Traditionally, economic theory has assumed that property purchase decisions are made with rationality, based on logical analysis of factors like price, location, and future return on investment. However, recent developments in behavioral finance reveal that individuals often make decisions that are not entirely rational, influenced by cognitive biases, emotions, and social pressures. These insights challenge the conventional notion of rationality in hous...
The residential property market plays a vital role in the global economy, influencing both individual wealth and broader financial stability. Traditionally, economic theory has assumed that property purchase decisions are made with rationality, based on logical analysis of factors like price, location, and future return on investment. However, recent developments in behavioral finance reveal that individuals often make decisions that are not entirely rational, influenced by cognitive biases, emotions, and social pressures. These insights challenge the conventional notion of rationality in housing markets, highlighting the role of factors such as overconfidence, loss aversion, and emotional attachment. This preface introduces the application of behavioral finance theories to residential property purchase decisions, exploring how psychological and emotional factors often lead buyers away from purely rational choices. Understanding these influences offers a more accurate framework for explaining market inefficiencies, housing bubbles, and mispricing of properties. By examining how biases and irrational behaviors shape decisions, this exploration seeks to provide a deeper understanding of the complexities of the residential property market. It also offers potential pathways for improving decision-making processes for homebuyers, real estate professionals, and policymakers, ultimately leading to a more efficient and stable housing market.
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