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  5. Memory and Reference Prices: An Application to Rental Choice

AEA Papers and Proceedings

ISSN 2574-0768 (Print) | ISSN 2574-0776 (Online)

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Memory and Reference Prices: An Application to Rental Choice

  • Pedro Bordalo
  • Nicola Gennaioli
  • Andrei Shleifer
AEA Papers and Proceedings
vol. 109, May 2019
(pp. 572–76)
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Abstract

Loewenstein and Simonsohn (2006) found that movers across US cities anchor their rental choices to rents in the city of origin, but subsequently converge to comparable local households. We explain this finding using the authors' (2019) model of memory and attention. Rents in the destination city cue recall of "normal" rents in the city of origin, making the former surprisingly high or low, causing movers to under- or overspend, respectively. Over time, experience with new city rents allows the memory database to adapt, and the effect fades away. The model yields two new predictions, for which we find supportive evidence.

Citation

Bordalo, Pedro, Nicola Gennaioli, and Andrei Shleifer. 2019. "Memory and Reference Prices: An Application to Rental Choice." AEA Papers and Proceedings, 109: 572–76. DOI: 10.1257/pandp.20191052

Additional Materials

JEL Classification

  • D91 Micro-Based Behavioral Economics: Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
  • R21 Urban, Rural, Regional, Real Estate, and Transportation Economics: Housing Demand
  • R23 Urban, Rural, Regional, Real Estate, and Transportation Economics: Regional Migration; Regional Labor Markets; Population; Neighborhood Characteristics