A study of boundedly rational behaviour in housing choice: evidence from Malaysia

Abstract

PurposeHousing choice is always a complicated decision with its dual functions as a roof over the head and as an investment good. This paper aims to investigate the boundedly rational behaviours that affect the housing choice three bounded behaviours play roles in explaining the decision-making behaviour of homebuyers when they acquire/sell a property. These behaviours are endowment effect, loss aversion and herding, which have implications on the decision-making process.Design/methodology/approachThe research is based on cross-sectional questionnaires and collected from 587 respondents. Factor analysis and reliability tests were used to identify the latent construct of bounded rational housing choice behaviour. In the meantime, the study used one-way analysis of variance (ANOVA) to examine whether there are any differences in the housing choice based on the respondents’ demographic backgrounds.FindingsThe findings indicated that a total of 11 items were reduced to three factors that accounted for the decision-making in housing choice. There are significant differences in herding behaviour amongst respondents with different level of education and their purpose of looking for a house.Research limitations/implicationsThis paper helps to identify latent constructs that shed light on the housing choice, especially on the bounded rational behaviour.Originality/valueThis is one of the few studies to explore boundedly rational behaviours in housing choice from the angle of homebuyers. Previous studies addressed housing choice in terms of price, demand and supply in general but not on individual homebuyers. The results will be useful to developers, policymakers, homebuyers as well as scholars in understanding the decision-making process in housing choice.