Real estate list price anchoring and cognitive ability

Abstract

PurposeThis paper aims to revisit the issue of anchoring effects in real estate markets to consider the current dual-processing theory of mind.Design/methodology/approachThe effects of high and low anchors in a price estimation task are, thus, explained by both Systems 1 and 2 as these play a key role in the guess of the “correct” list price. The authors also take into account the mediation of overconfidence in the estimates and how confidence relates to cognitive ability. Moreover, the authors nuance the field experiment by considering the decisions taken by professional real estate agents and amateur students alike because experts are expected to be less prone to cognitive biases.FindingsThe large anchoring index of 67 per cent found for the real estate agents suggests these professionals make their judgment unconsciously by priming (and thus, using their System 1), despite being overconfident. In contrast, an even larger anchoring index for the undergraduates (86 per cent) was found, as expected for nonexperts. However, the authors suggest the students’ judgments use their System 2 because they are clueless in their non-anchored estimates and, as result, consider the list prices as a heuristic to deliberately anchor and adjust.Originality/valueAnchoring effects in real estate markets have not been approached so far by the dual-processing theory of mind.