Decision making in the pre-development stage of residential development

Abstract

PurposeThe purpose of this paper is to investigate the rationality of the decision making of residential developers in Thailand. Exploring its implications in the residential development field, the researchers propose the famous prospect theory as the primary cause of developers’ incompetent decisions during the pre-development stage of residential development.Design/methodology/approachThe methodologies used in this research include literature review, expert interview, and experimental questionnaire.FindingsThe results show that Thai developers exhibit all five aspects of prospect theory: loss aversion, fourfold pattern, bias from rare events, mental accounting, and preference reversals (PR); however, in contrast to previous literature, the researchers found that Thai developers always choose to receive gains, and usually make risky choices to avoid losses, even if the risk of loss is low. Moreover, status quo bias has a low influence on Thai developers: they tend to become attached to the areas they develop, but remain flexible in selecting a project type that fits the land. In addition, PR and the framing effect affect only some groups of developers.Practical implicationsThis research provides awareness to professionals in the residential development field to make sound judgements, using Thailand as a case study.Originality/valueThis paper reveals the existence of the unproven prospect theory in the residential development field using an empirical study in Thailand as a case study.