Articles:
Over-Confidence and Cycles in
Real Estate Markets: Cases in Hong Kong and Asia
Authors: Ko Wang, Yuqing Zhou, Su Han Chan, and
K.W. Chau
Start Page: 93
End Page: 108
Volume: 3
Issue Number: 1
Year: 2000
Publication: International Real Estate Review
Abstract:
Studies on the calibration of subjective probabilities find that
people tend to over-estimate the precision of their knowledge. In this
paper we develop a semi-rational model and apply it to the real estate
markets in Hong Kong and other Asian countries. The key point is that a
person is rational about her/his private information until her/his private
information is confirmed by a clearly defined market signal. Using a
pre-sale as a mechanism of updating a developer's beliefs, this paper
analyzes the impact of over-confidence on overbuilding and cycles in real
estate markets. Our finding indicates that a pre-sale activity will
increase the magnitude of over-building and over-confidence will increase
the volatility in real estate markets. Our model also has implications to
the well-established literature dealing with the issue of over-capacity in
many industrial sectors.
Back
to Previous Page |