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Does the Dream of Home Ownership Rest upon Biased Beliefs? A Test Based on Predicted and Realized Life Satisfaction

Odermatt, Reto and Stutzer, Alois. (2020) Does the Dream of Home Ownership Rest upon Biased Beliefs? A Test Based on Predicted and Realized Life Satisfaction. IZA Discussion Paper Series, (13510). Bonn.

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Abstract

The belief that home ownership makes people happy is probably one of the most widespread intuitive theories of happiness. However, whether it is accurate is an open question. Based on individual panel data, we explore whether home buyers systematically overestimate the life satisfaction associated with living in their privately owned property. To identify potential prediction errors, we compare people’s forecasts of their life satisfaction in five years’ time with their current realizations. We find that, while moving into a purchased dwelling is associated with higher life satisfaction, people systematically overestimate the long-term satisfaction gain. The misprediction therein is driven by people who follow extrinsically-oriented life goals, highlighting biased beliefs regarding own preferences as a relevant mechanism in the prediction errors.
Faculties and Departments:06 Faculty of Business and Economics > Departement Wirtschaftswissenschaften > Professuren Wirtschaftswissenschaften > Politische Ökonomie (Stutzer)
UniBasel Contributors:Stutzer, Alois and Odermatt, Reto
Item Type:Working Paper
Publisher:IZA - Institute of Labor Economics
Note:Publication type according to Uni Basel Research Database: Discussion paper / Internet publication
Language:English
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Last Modified:11 Jan 2021 13:14
Deposited On:08 Jan 2021 13:14

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