Estimating the weight of opportunity costs in housing consumption |
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Authors: | Machiel van Dijk |
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Institution: | CPB Netherlands Bureau for Economic Policy Analysis, The Hague, The Netherlands |
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Abstract: | Behavioural economics suggests that people tend to neglect or underweight opportunity costs. However, strong empirical evidence for the size of the underweighting appears to be largely absent from the literature. What are the weights people attach to opportunity costs relative to out-of-pocket costs? In this article, I estimate the weight of opportunity costs in probably the largest economic decision that households make: buying a house. I show that homeowners attach approximately twice as much weight to out-of-pocket costs of their housing consumption than to the opportunity costs associated with this. |
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Keywords: | Opportunity costs out-of-pocket costs housing consumption |
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