The Bartlett School of Construction and Project Management


Lois Yixi Liao

Herding Behaviour in Housing Markets

School Research Theme: Behavioural Economics in Housing Markets
Research supervisors:  Prof Michelle Baddeley; Dr Xuxin Mao
Start date: 2 November 2015

Compared to other parts of the UK, the increasing house prices in London raises questions to whether such discrepancies are due to a property’s fundamental value or is a consequence of herding behaviour. There have been various theoretical and empirical approaches adopted in examining the occurrence of herding. However, a research gap exists in using philosophy and psychology to assess herding behaviour. In addition, the use of Gale-Shapley’s matching-searching model on the housing market has not been fully realised.

My thesis examines the existence of herding behaviour amongst buyers in the housing market of selected London Boroughs. In addition, my thesis aims to understand the extent of such herding behaviour, as well as whether it is rational or emotional. The contribution of the thesis is three-fold. First, it uses existentialism philosophy and psychology to explain drivers of herding behaviour, as well as an individuals’ need for housing purchase. Second, it applies a Gale-Shapley matching-searching model to model the housing buy-sell process. Third, it provides economic insights and policy implications.

The methodology used includes empirical analysis, computational modelling and development of grounded theory. The empirical models include the Lakonishok-Schleifer-Vishny Model, Cross Sectional Standard Deviation (CSSD), as well as comparisons between actual and fundamental housing prices. The computational model is adapted from Gale-Shapley’s matching algorithm which initially aims to resolve the stable marriage problem. 

Publications and other work