Prominence Effect in Shanghai Apartment Prices

Abstract

A field study conducted in Shanghai identified a robust inconsistency between real estate developers' desired sales pattern (selling all apartments in a building at similar rates) and the actual sales pattern (selling good apartments faster). The authors explained this inconsistency with Tversky, Sattath, and Slovic (1988)'s prominence principle, according to which buyers, who were in a choice mode, weighed the desirability of floors more heavily than developers, who were in a matching mode when setting prices. This explanation is corroborated by controlled experiments involving potential homebuyers and professional real-estate price-setters. The research relates an intriguing anomaly originally found in paper-and-pencil surveys to a real-world issue in one of the world's most active markets. These findings also have implications for issues beyond real estate markets.

Keywords: real estate, pricing, preference reversal, prominence effect, choice vs. matching

JEL Classification: D12, L1, M31