Cognitive Biases in Second-Hand and Pre-sale Real Estate Prices in Nanjing

The real estate market has achieved rapid growth during the past few years due to urbanization, rising incomes, and some government policies aimed at promoting housing ownership. Therefore, the subject of the real estate market has long been studied as a core problem in the society, especially when it shapes the financial market. This article explores the effects of psychological biases such as loss aversion, endowment effect, herding effect, and animal spirits on the real estate market. These cognitive biases can lead to irrational behavior among buyers and sellers in the market, ultimately affecting the overall market’s performance and efficiency. To illustrate the effects of cognitive biases, a comparison between the pre-sale and second-hand real estate markets has been examined. The objective of the article is to research the influence of behavioral economics on the real estate sector and offer methods for dealing with these problems. The study finds that cognitive effects can lead to rigid real estate prices and transactions, which can cause property bubbles in severe cases. The study also provides suggestions from both policymakers and property buyers, such as considering financial subsidies and sunk costs to constrain the effects of cognitive biases.