Question: Housing Bubble

"Because of the hosing bubble, many houses are now selling for much less than their selling price just two to three years ago. There is evidence that homeowners with virtually identical houses tend to ask for more if they paid more for the house. What misconception are they making?"

You can analyze the problem by using these three questions:

1. Who is making the bad decision?

2. Does the decision maker have enough information to make a good decision?

3. The incentive to do so?

Answer to these questions will suggest solutions centered on:

1. Letting someone else make the decision, someone with better information or incentives

2. Giving the decision maker more information

3. Changing the decision maker's incentives.