Friday, 31 Oct 2025
  • Contact
  • Privacy Policy
  • Terms & Conditions
  • DMCA
logo logo
  • World
  • Politics
  • Crime
  • Economy
  • Tech & Science
  • Sports
  • Entertainment
  • More
    • Education
    • Celebrities
    • Culture and Arts
    • Environment
    • Health and Wellness
    • Lifestyle
  • đŸ”„
  • Trump
  • VIDEO
  • House
  • White
  • ScienceAlert
  • Trumps
  • Watch
  • man
  • Health
  • Season
Font ResizerAa
American FocusAmerican Focus
Search
  • World
  • Politics
  • Crime
  • Economy
  • Tech & Science
  • Sports
  • Entertainment
  • More
    • Education
    • Celebrities
    • Culture and Arts
    • Environment
    • Health and Wellness
    • Lifestyle
Follow US
© 2024 americanfocus.online – All Rights Reserved.
American Focus > Blog > Economy > Homo Economicus and Home Buying Economics
Economy

Homo Economicus and Home Buying Economics

Last updated: March 21, 2025 5:20 pm
Share
Homo Economicus and Home Buying Economics
SHARE

Economists often find themselves the target of criticism for their tendency to portray individuals as homo economicus, a notion of people as perfectly rational beings engaged in emotionless financial decision-making. However, it’s essential to clarify that no competent economist genuinely subscribes to this view any more than a physicist believes that billiard balls are flawlessly spherical, gliding across a frictionless surface. Just as a physicist might simplify the complexities of a game of pool for practical purposes, economists sometimes rely on simplified models of human behavior. Yet, it’s crucial to recognize that these assumptions are not universally valid or applicable to every scenario.

One particular area where the homo economicus model can lead to misguided strategies is in the realm of homebuying. Recently, I came across a mechanism known as an escalation clause that buyers can include when submitting an offer to purchase a home. This concept bears resemblance to a feature on eBay: when bidding on an item, you might set an initial bid of $50 but also configure it to automatically increase up to a specified limit, say $100, whenever competing bids appear. This approach allows bidders to avoid the hassle of constant monitoring throughout the bidding process.

An escalation clause operates in a similar fashion. For instance, consider a house listed for $500,000 (or, in the quirky real estate market of San Francisco, perhaps a hammock nestled in a garden shed). An offer using an escalation clause might state, “I’m offering $500,000, but I will raise my offer in increments of $5,000 above any competing bids, up to a maximum of $560,000.” In a recent conversation with a real estate agent, I inquired about the prevalence of such clauses in offers.

See also  Adidas to Enter Safety Footwear in 2026 With New ‘Pro Work’ Line

To my surprise, she strongly advised against including an escalation clause. According to her, offers with these clauses are often overlooked in favor of other offers that might initially seem lower but lack the complexity of an escalation clause.

Why does this eBay-style strategy falter in the housing market? The key lies in the asymmetric knowledge inherent in eBay bidding. As a bidder, you are aware of your maximum willingness to pay, say $100, while the seller is in the dark about your true limits. If the bidding escalates to $75, the seller might reasonably believe that was your best offer. They understand buyers typically wish to minimize spending, while sellers aim to maximize return, creating a plausible scenario where the seller feels they have received a competitive offer.

However, the introduction of an escalation clause fundamentally alters this dynamic. By stating your willingness to pay up to $560,000, you explicitly inform the seller of your financial capacity. You’re essentially saying, “I’m only offering you $500,000 right now, but I can go higher if someone else does.” If a competing offer comes in at $530,000, the rational homo economicus would suggest that the seller should accept your escalated bid of $535,000. Yet, in reality, many sellers would likely opt for the straightforward $530,000 offer, even if it’s not the highest bid they could have received.

This tendency arises from the inherent desire for sellers to feel they are receiving the best possible offer. Even if the $530,000 bidder could have stretched their budget, the absence of an escalation clause allows the seller to believe that this was indeed their best offer—much like an eBay seller might assume. It turns out that a significant number of sellers would rather forgo an additional $5,000 than engage with a buyer they perceive as attempting to lowball them. While this decision may cost them, it fulfills a psychological need for respect and fairness in the negotiation process.

See also  Canada to curb steel and aluminium imports to protect jobs

It’s essential to clarify that these observations do not indicate a flaw in economic theory. Any reasonable economist recognizes that non-monetary factors significantly influence decision-making. For instance, the relatively modest wages earned by astronauts, despite the demanding and perilous nature of their work, can be attributed to the considerable non-monetary benefits associated with the profession—namely, the immense prestige and fulfillment that come with being an astronaut.

To wrap up, I pose a question to readers: what non-monetary benefits or costs have shaped your decisions regarding jobs, transactions, or similar choices?

TAGGED:BuyingEconomicsEconomicushomeHomo
Share This Article
Twitter Email Copy Link Print
Previous Article Regis professor’s wife killed in “sustained, vicious attack,” DA says Regis professor’s wife killed in “sustained, vicious attack,” DA says
Next Article Elon Musk Supporters Speak Out After Bill Burr Roasts Billionaire Elon Musk Supporters Speak Out After Bill Burr Roasts Billionaire
Leave a comment

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

Popular Posts

Walgreens Loses Another $3 Billion And Plans To Close 1,200 Stores

Walgreens Boots Alliance recently announced a significant strategic move in response to its financial challenges.…

October 15, 2024

Lewis Hamilton’s race engineer Peter Bonnington’s surprise floors him

Lewis Hamilton's long-time race engineer Peter Bonnington, also known as Bono, surprised the seven-time world…

December 18, 2024

50 years ago, satellites threatened astronomers’ view of the cosmos

If you value keeping up to date on the latest scientific discoveries and developments, please…

October 6, 2024

Outset raises $17M to replace human interviewers with AI agents for enterprise research

Outset, a San Francisco startup specializing in AI-driven market research interviews, has secured $17 million…

June 11, 2025

Chrissy Metz Recalls Stepfather Weighing Her, Locking Cupboards

Chrissy Metz Opens Up About Childhood Trauma with Stepfather In a recent interview on the…

October 22, 2024

You Might Also Like

Is This The Best ETF to Invest In Ahead of Potential AI Bubble Burst?
Economy

Is This The Best ETF to Invest In Ahead of Potential AI Bubble Burst?

October 31, 2025
Alphabet hikes capex again after earnings beat on strong ad, cloud demand
Economy

Alphabet hikes capex again after earnings beat on strong ad, cloud demand

October 31, 2025
What is a merchant bank?
Economy

What is a merchant bank?

October 30, 2025
Fed Cuts Rates by a Quarter Point, as Expected
Economy

Fed Cuts Rates by a Quarter Point, as Expected

October 30, 2025
logo logo
Facebook Twitter Youtube

About US


Explore global affairs, political insights, and linguistic origins. Stay informed with our comprehensive coverage of world news, politics, and Lifestyle.

Top Categories
  • Crime
  • Environment
  • Sports
  • Tech and Science
Usefull Links
  • Contact
  • Privacy Policy
  • Terms & Conditions
  • DMCA

© 2024 americanfocus.online –  All Rights Reserved.

Welcome Back!

Sign in to your account

Lost your password?