The Price of Inattention: Evidence from the Swedish Housing Market

Do behavioral biases a ect prices in a high-stake market? We study the role of leftdigit bias in the purchase of an apartment, one of the most important assets in a household’s portfolio. Left-digit bias is the inability to fully process digits after the rst, perceiving prices just below a round number (such as $3.99) as cheaper than their round counterpart ($4). We start by documenting that apartments listed at just-below asking prices are sold at a 3-5% higher nal price after an auction. This e ect appears not to be driven by i) di erences in observable characteristics; ii) di erences in real estate agents’ behavior; or iii) institutional characteristics of the market. We show that apartments using just-below prices attract more bidders and bids, leading to higher competition and to a higher nal price. Our results suggest that inattentive buyers might be losing roughly half a year of disposable income.