Exploring House Price Dynamics: An Agent-Based Simulation with Behavioral Heterogeneity
- 75 Downloads
The objective of this study is to contribute to the understanding of price formations in housing markets through an agent-based simulation that conceptualizes insights from behavioral economics. For this purpose, the study uses a prominent real estate market model as a benchmark and extends it to account for (1) behavioral heterogeneity and (2) dynamic agent interaction. The validation of the model is carried out by using real data from the Turkish housing market. The results show that the introduction of a fitness-based behavior-switching regime with myopic agents improves the extent to which the observed market behavior can be replicated, in comparison to the benchmark model.
KeywordsAgent-based modeling House prices Behavioral economics Evolutionary finance
This paper was based mainly upon the unpublished doctoral dissertation of the first author (Ozbakan 2016). We graciously appreciate the constructive and meticulous feedback received during the review process.
- Barberis, N., & Thaler, R. (2003). A survey of behavioral finance. In G. M. Constantinides, M. Harris & R. M. Stulz (Eds.), Handbook of the economics of finance (Vol. s.l, pp. 1053–1128). Amsterdam: Elsevier.Google Scholar
- Bijman, I. T. (2012). Expectations in a nonlinear real estate model. Unpublished master’s thesis. University of Amsterdam, Amsterdam.Google Scholar
- Bolt, W. et al., (2013). Identifying booms and busts in house prices under heterogeneous expectations. Tinbergen Institute Discussion Papers, pp. 1–24.Google Scholar
- Burnside, C., Eichenbaum, M., & Rebelo, S., (2011). Understanding booms and busts in housing markets. NBER Working Papers, Issue 16734, pp. 1–56.Google Scholar
- Frankel, J. A., & Froot, K. A. (1987). Expectations, using survey data to test standard propositions regarding exchange rate. The American Economic Review, 77(1), 133–153.Google Scholar
- Frankel, J. A., & Froot, K. A. (1990). Chartists, Fundamentalists and the Demand for Dollars. National Bureau of Economic Research, 1655, 73–126.Google Scholar
- Himmelberg, C., Mayer, C., & Sinai, T., (2005). Assessing high house prices: Bubbles, fundamentals and misperceptions. NBER Working Paper Series, Issue 11643, pp. 1–42.Google Scholar
- Hommes, C. H. (2006). Heterogeneous agent models in economics and finance. In: L. Tesfatsion & K. L. Judd (Eds.), Handbook of Computational Economics (Vol. s.l., pp. 1110–1146) Elsevier.Google Scholar
- Ozbakan, A. T. (2016). Exploring house price dynamics: An agent-based simulation with behavioral heterogeneity. Unpublished doctoral dissertation. Izmir: Izmir Institute of Technology.Google Scholar