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Can temptation explain housing choices over the life cycle?
Author(s) -
Angelini Viola,
Bucciol Alessandro,
Wakefield Matthew,
Weber Guglielmo
Publication year - 2020
Publication title -
the manchester school
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.361
H-Index - 42
eISSN - 1467-9957
pISSN - 1463-6786
DOI - 10.1111/manc.12304
Subject(s) - temptation , economics , purchasing , investment (military) , cash , endogeneity , control (management) , microeconomics , monetary economics , econometrics , finance , psychology , social psychology , operations management , politics , political science , law , management
We use individual life history data from 12 European countries, and duration analysis that controls for unobserved heterogeneity, to investigate whether observed patterns of investment in illiquid assets and housing are consistent with predictions based on “temptation preferences”. A motivating model takes into account the standard motives for saving, but also recognises that illiquid financial assets and housing may be used by individuals who find it hard to control the temptation linked to abundant cash on hand. Even controlling for many possible motives for purchasing housing, and for unobserved heterogeneity, a large fraction of individuals become significantly more likely to buy housing after investing in illiquid assets; this finding is consistent with the predictions of the model.