Cognitive Reference Points, the Left-Digit Effect, and Clustering in Housing Markets Speaker: Prof. Vincent Yao, AREA Professor of Real Estate, Director of Real Estate Center and Director of the College PhD Program, Robinson College of Business, Georgia State University

THE SPEAKER

Prof. Vincent Yao is the AREA Professor of Real Estate, Director of Real Estate Center and Director of the College PhD Program in the Robinson College of Business at Georgia State University in Atlanta GA, USA. He is also a senior research fellow at Federal Reserve Bank of Atlanta, a research fellow at Hong Kong Monetary Authority, and holds visiting chair professorship at several universities in China. He received his BA from Renmin University of China and PhD in Economics from State University of New York at Albany.

Prior to joining GSU, he spent over nine years as a director in Fannie Mae, responsible for overseeing a credit portfolio of $3 trillion loans guaranteed and securitized by the company. He was also the business sponsor of corporate models used in credit risk functions.

His current research interests are household finance, real estate finance, and housing policies. His papers have been published in the American Economic Review, Journal of Financial Economics, Management Science, Journal of Urban Economics, Real Estate Economics, and Journal of Financial Intermediation etc. He is currently on the editorial board of Real Estate Economics – the leading journal in real estate.

His recent research has focused on the following areas:

• Spillover Effect of Foreclosures
• Transmission of Monetary and Other Policies to Households
• Financial Decision Making of Households
• Role of Financial Intermediaries

ABSTRACT

Using a quasi-experimental setting of two similar properties listed only $100 apart, but with a different left digit, we document that properties listed with smaller left digits are 3.8% more likely to sell, stay 5% fewer days on market, and sell for 0.1% more. Buyers of these homes are more likely to have a lower credit score, lower income, higher leverage and pay higher interest rates on their mortgage. In addition, these buyers also resell for a lower rate of return, and are more sluggish in refinancing their mortgages. Our results highlight how behavioral biases can affect even high-value purchases such as housing.