Uncertainty, Expectations and Behavioural Aspects of Housing Market Choices

Abstract

Housing is a complex commodity and housing market choices carry with them substantial economic and social consequences for the households making them. Housing market decisions are complex, uncertain and involve expectations-formation. This paper argues that the standard economic theory of decision-making under uncertainty – expected utility theory – is particularly ill-suited as the basis for understanding such complexity. The paper then explores alternative avenues for potential development, reviewing the key characteristics of owner-occupied housing markets and housing search, and examining how the resources of institutional and behavioural economics could be used to inform our understanding of the residential mobility process. The paper concludes by outlining an agenda for empirical research.

Key Words:

• Market choices
• Uncertainty
• Expectations
• Behavioural economics