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Optimism-driven Decisions of Real Estate Developers under Demand Uncertainty
Xu, Rui-hui1; Lai, Rose Neng2
2018-04-01
Source PublicationJOURNAL OF REAL ESTATE RESEARCH
ISSN0896-5803
Volume40Issue:2Pages:267-308
Abstract

We develop a set of theoretical models to show how differences in real estate developers' optimism about market demand affects construction and sales decisions. The model is a variation of asymmetric Cournot duopoly where developers choose levels of output conditioned on their rivals' output and their own levels of optimism in a stochastic environment. Our results show that optimistic developers construct more housing and hold more inventory when facing higher demand uncertainty. Developers' overconfidence creates value in terms of optimal profit and market share. We also discuss how updating beliefs over multi periods could turn a pessimistic developer to an optimistic one, and vice versa. The paper thus provides some behavioral insights into puzzling phenomena such as overconfidence, overbuilding, construction timing, and inventory holding.

KeywordOptimism Demand Uncertainty Heterogeneous Beliefs Real Estate Developers
URLView the original
Indexed BySSCI ; SSCI
Language英语
WOS Research AreaBusiness & Economics
WOS SubjectBusiness, Finance ; Economics
WOS IDWOS:000441295700005
PublisherAMER REAL ESTATE SOC
The Source to ArticleWOS
Fulltext Access
Citation statistics
Document TypeJournal article
CollectionDEPARTMENT OF FINANCE AND BUSINESS ECONOMICS
Corresponding AuthorLai, Rose Neng
Affiliation1.The People's Bank of China (PBC)
2.University of Macau
Corresponding Author AffilicationUniversity of Macau
Recommended Citation
GB/T 7714
Xu, Rui-hui,Lai, Rose Neng. Optimism-driven Decisions of Real Estate Developers under Demand Uncertainty[J]. JOURNAL OF REAL ESTATE RESEARCH,2018,40(2):267-308.
APA Xu, Rui-hui,&Lai, Rose Neng.(2018).Optimism-driven Decisions of Real Estate Developers under Demand Uncertainty.JOURNAL OF REAL ESTATE RESEARCH,40(2),267-308.
MLA Xu, Rui-hui,et al."Optimism-driven Decisions of Real Estate Developers under Demand Uncertainty".JOURNAL OF REAL ESTATE RESEARCH 40.2(2018):267-308.
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