| Real estate is an important commodity of the livelihood of people, it can meet consumer demand for living, and meet the needs of investment. To achieve effective market demand, at first must analyze buyers’ psychological response and behavior which may have an impact on price volatility. Buyers do not fully comply with the assumption of the neoclassical paradigm of rational people in real-life.Buyers behavior is the subjective responses to a variety of economic stimulus under the impact of outside and internal factors.The traditional theoretical method is limited in the "rational" framework, ignoring buyers inner psychological and actual behavior analysis, as a result, a lot of real estate phenomena is hard to be explained, for example, buyers’ cognitive systematic bias and group psychological deviation under uncertain circumstances. On this background, the study of behavioral economics arising in the 1980 s may indicate a new path to analysis of decision-making and price fluctuations.While traditional theoretical framework is still a better description of the market and prices, but behavioral economics expand its ideas and methods,making it more effective and perfect.Based on the analysis of buyers’ non-rational choice in the “behavioral economics”, we may find a new path to explain the real estate market price fluctuations.First of all,analyze the irrational characterized of real estate price fluctuations, and described briefly of the traditional theoretical framework of real estate market and price. In these analyzes,we found that the effective demand for real estate market is the key actors affecting the price, and the validity of the demand is usually influenced by psychology and behavior of buyers.Then we analyze the non-rational choice of buyers and its connotation on the basis of behavioral economics.Based on the above analysis, we explain that introducing the buyers of non-rational choice into price fluctuations analysis is possible.Secondly,we analysis the choice-making process of buyers from behavioral economics perspective, and explain the causes of the real estate market price fluctuations. The choice-making behavior is a dynamic process of psychological balance, including buyers’ cognitive processes, emotional processes and will, mutual correlation between people and so on.The choice-making process of buyers’ cognitive and emotional factors may cause the systematic cognitive biases, and the herding behavior will lead to the groups’ bias. These bias will drive the real estate prices deviating from its intrinsic value, cause fluctuations in real estate prices.Finally, we think about two aspects of buyers’ irrational choice, including information cognitive biases and groups’ bias, and try to analyze its impact on real estate prices. Along with the information cognitive biases, buyers may have irrational expectation and be a noise trader.Noise trader model analyze noise traders irrational expectation will pose a risk of real estate prices, so that real estate prices deviated from fundamental value; completely rational noise traders may get higher returns than the rational trader, so there may be long standing in the real estate market. By the empirical analysis of China’s real estate from 2003q1 to2014q3, we find that irrational expectations of noise buyers have a significant impact on price fluctuations, and this effect is different among before the financial crisis, between and after the event. Along withthe groups’ bias, the herding behavior may appear among buyers. The analysis of herd behavior on the real estate market indicates that: there is a significant transaction herd behavior on China’s real estate market, and some correlation between herd behavior and the fluctuations of prices,and further empirical analysis showed that herd behavior will exacerbate real estate price volatility in the short term. |
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