Abstract
Abstract The study aims to explore the effect of behavioral biases on financial decision making in the real estate sector of Pakistan. The data of a sample of 244 real estate investors are collected through a survey carried out using different sources. The findings of the study show the relationship of different biases, including overconfidence, herding effect, gambler’s fallacy, and regret aversion on prices of real estate. Real estate prices are more affected by overconfidence and gambler’s fallacy than herding effect and regrets aversion bias in Pakistan. The findings furthermore reveal that these biases do not depend on gender, education, and demographics. It is recommended to carefully consider the market factors while making decisions in real estate, as the prices do not always show the real value of the property.
Highlights
There is no valid law and authority for the regulation of real estate prices, which has led to a monopoly of a few giant investors in Pakistan
This study shows that overconfidence has a positive effect on real estate prices in Pakistan
Investors agree that the lack of financial information on real estate causes delays and hinders them when it comes to decision making
Summary
There is no valid law and authority for the regulation of real estate prices, which has led to a monopoly of a few giant investors in Pakistan. The prices of real estate inflate due to overconfident investors and their herd behavior; this artificial price level is maintained, and arbitragers are the intermediaries who come to play. 1, 2021 www.degruyter.com/view/j/remav their role to bring prices to an equilibrium level (Constantinescu, 2010; Ndiritu, 2015). Experiments demonstrated both positive and negative inflation shocks that have an asymmetrical impact on price rise with negative shock, not loading so readily to price settlement as a positive shock. The second type of behavioral bias depends on the information heard in specific areas, where individual decides based on what other people are doing and follows the same trend
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