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Luca Repetto, Alex Solís, The Price of Inattention: Evidence from the Swedish Housing Market, Journal of the European Economic Association, Volume 18, Issue 6, December 2020, Pages 3261–3304, https://doi.org/10.1093/jeea/jvz065
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Abstract
Do behavioral biases affect prices in a high-stakes market? We study the role of left-digit bias in the purchase of an apartment. Left-digit bias is the failure to fully process digits after the first, perceiving prices just below a round number (such as $3.99) as cheaper than their round counterpart ($4). Apartments with asking prices just below round millions are sold at a 3%–5% higher final price after an auction. This effect appears not to be driven by differences in observables or in real estate agents’ behavior. Auctions for apartments listed just below round numbers are more competitive and attract more bidders and bids.