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Money illusion in consumer perception of housing transactions

John Raftery (Professor, Department of Building and Real Estate, The Hong Kong Polytechnic University, Kowloon, Hong Kong)
Goran Runeson (School of Building, University of New South Wales, Sydney, Australia)

Journal of Property Valuation and Investment

ISSN: 0960-2712

Article publication date: 1 May 1998

Abstract

Money illusion is a bias in the assessment of the real value of economic transactions, induced by their nominal evaluation. By definition, money illusion may only be manifested in the presence of inflation. This paper presents the results of an experiment which shows that the actual behaviour of subjects departed from theoretical expectations and that the subjects failed to recognize the underlying real values and instead made nominal evaluations. The evidence has the further implication that, in the absence of some house price escalation, there may be a tendency for vendor’s asking prices to be “sticky”. Thus, in these circumstances the asking price of the property will tend to function less well as a signal of relative scarcity in the marketplace.

Keywords

Citation

Raftery, J. and Runeson, G. (1998), "Money illusion in consumer perception of housing transactions", Journal of Property Valuation and Investment, Vol. 16 No. 2, pp. 175-184. https://doi.org/10.1108/14635789810212931

Publisher

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MCB UP Ltd

Copyright © 1998, MCB UP Limited