Experts vs. Amateurs: Real Estate Edition
Is there such a thing as an expert opinion? What is the effect of specialized knowledge on decision-making? The answers may both surprise and hopefully inform you.
Just over two decades ago, Gregory B. Northcraft and Margaret A. Neale conducted an experiment, in the real world setting pitting the expert judgment of the professional real estate agents against the semi-informed opinions of business school students. The outcome of which was somewhat remarkable.
Both groups were given the opportunity to assess the value of a home that was on the market at the time. They were given identical information, which included an asking price for the home. The Only difference being that half of the Agents were furnished an asking price that was substantially higher than the list price of the home, while the other half saw an asking price that was substantially lower.
Each agent provided his or her professional assessment of a reasonable value for the home as well as the absolute lowest price that the home should be sold for. The agents were next asked about the factors that had influenced their judgment.
Interestingly, the initial asking price was not listed among the influencing factors, In fact, it was insisted upon by most that the listing price had no effect on their responses whatsoever. Of course they were wrong.
The “Anchoring” effect (the cognitive bias that describes the human tendency to place too much emphasis on the initial piece of information presented) was approximately 41%. In the end, the professionals fared only slightly better than the amateurs (business school students) with no real estate experience, who anchoring bias prevailed in 48% of responses. Further the students actually were quicker to admit that they had been influenced the anchor, while the professionals were adamant in denying that influence.
In the end, is an "expert" opinion worth all that it is chalked up to be? In short, no. Perhaps only in the few cases when the professional is acutely aware of the thinking biases such as the anchoring effect.
Laureen Trent/ :VP Trent Realty, Journalist Brevard Times
Contributor: Theodor Tonca:Writer, Businessman, entrepreneur,CEO of Graham Theodor
The Trent Family serving Brevard County since 1989
Trent Realty, Inc. operates as a subsidiary of Graham Theodor & Co. Ltd.
Sources −Gregory B. Northcraft & Margaret A. Neale Experts, amateurs, and real estate: An anchoring-and
Adjustment perspective on property pricing decisions – Organizational Behavior & Human Decision Processes Vol. 39 Issue 1, February 1987, Pg. 84-97
−Grace W. Buccchianeri & Julia Minson A Homeowner's Dilemma: Anchoring in Residential Real Estate
Transactions – Journal of Economic Behavior & Organization 89, Pg. 76-92