Do home owners have an accurate perception of their wealth ? If not, what are the reasons behind this ? Also, what are the consequences of using home owners' subjective estimates for research, monitoring financial stability, and policymaking ?
Accurate measurement of the stock of housing wealth, its distribution within society, and heterogeneity in (housing) wealth is crucial: as an input for research in macro and microeconomics and the social sciences in general, as well as for macro-economic monitoring and financial supervision.
Due to limited objective data about individual and aggregate housing wealth, owner-estimated values (OEVs) collected in country-representative surveys are often used as if they were market prices. But are they? Are owners willing, or able, to report the market price of their home ? Do pscychological biases affect reported values in a systematic way ? Can a better understranding of such biases, as well as the introduction of (non-)monetary incentives in surveys, lead to improved measurements of housing wealth ?
We will investigate these questions by establishing evidence through combining a country-representative household wealth survey (HFCS) with a controlled experiment and the entirety of house transaction prices in Luxembourg. For each OEV, we will impute a range of plausible market values, making use of detailed information on the structural and locational characteristics of dwellings, collected through questions specifically included in the HFCS, but we will strategically vary the incentive structure (to obtain trhthfully reported beliefs), the amount of information a participant has about the functioning of housing markets, and the determinants underlying the divergences of OEVs from market prices, and hence classify them according to their economic importance and develop remedies to address them.
The project focus is on Luxembourg. However, the experiment will examine general human behavior and hence increase overall knowledge about the influence of certain psychological biases in the context of housing markets. Additionally, the Luxembourg HFCS follows an ex ante harmonization process steered by the European Central Bank, making survey results generalizable across the EU.