Genesove and Mayer (2001) based their research on the statement that the data from the 1990s demonstrated that seller behavior was majorly driven by the tendencies concerning the aversion of loss in the housing market. In particular, the authors used information from the housing market that showed three primary behavioral patterns of the condominium owners exposed to a possibility of nominal losses: a) 25 to 35% higher asking selling prices than the original purchase prices of housing; b) attaining the final selling process that are about 3 to 18% higher than the original purchase prices; and c) the lower likeliness of sale hazards compared to the other sellers (Genesove & Mayer, 2001). The authors made a connection between the behavior of the sellers at the real estate market and the intention to avert losses.
Discussing the background of the theoretical basis for their research, the authors took into consideration such factors as the correlation between prices and the volume of sales and between the prices established by the sellers and time spent on the market (Genesove & Mayer, 2001). In addition, the researchers also mentioned that under the circumstances of a high likeliness of losses, the prices of the sellers tend to be less flexible than the offers of the buyers (Genesove & Mayer, 2001). In other words, the buyers are inclined to adjust to the elevated asking prices of housing. The authors relied on findings of the statistics of the Boston Condominium Price Index of the 1980s and the 1990s and revealed a cycle of falls and rises of the real estate prices that could be associated with the possibility of losses in the market (Genesove & Mayer, 2001).
In that way, the initial section of the article is intended to explain the theoretical basis for the research, and the following parts of the article were designed to provide qualitative and quantitative grounds for the phenomenon under discussion. The quantitative data for this discussion was also taken from the City of Boston Assessor’s Office’s records of the 1990s. However, the authors’ attempt to predict that seller behaviors (especially those related to the establishment of the asking prices in the markets) is a definite strength of the article. Moreover, the authors provide a very thorough and detailed investigation of all the aspects with the inclusion of graphic materials for better comprehension.
Speaking about the weaknesses of this research, it is important to point out the fact that the entire article is based on the findings made within just one industry – the real estate market. In that way, the focus of the research is quite narrow and specific; besides, the housing market is not a sufficient representation of the relationship between the loss probability and seller behaviors. This is the case because the real estate market has a very specific type of goods that can be referred to as luxury goods, and this status of the properties sold may produce a strong impact on the consumer and seller behaviors. Moreover, another critical factor in this particular example is the behavior of the real estate buyers that was reported to correlate with that of the sellers. It is possible that the connection works both ways and the sellers are influenced by the buyers’ decisions to purchase properties for the elevated prices. In addition, one more factor worth mentioning in the critique of this article is the character of the example used to study loss aversion and seller behavior. In particular, the evidence was taken from a very specific market, time period, and geographical area. In that way, the transferability of the evaluation presented in the article may be limited to just one specific phenomenon.
Reference
Genesove, D. & Mayer, C. (2001). Loss aversion and seller behavior: Evidence from the housing market. The Quarterly Journal of Economics, 1233-1260.