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Research Seminars & Workshops @ IRES


Professor Abdullah Yavas
Wisconsin School of Busines
University of Wisconsin-Madison

First Cut is the Deepest: On Optimal Acceptance Strategies in Real Estate


Date:

05 March 2014 (Wed)

Time:

3.30 - 5.00pm

Venue:

School Conference Room Blk SDE3, Level 3


Abstract

We consider the problem of a seller who faces an unknown number of offers where each offer is a random draw from a known distribution. The objective of the seller is to maximize the probability that the highest offer is chosen. This is equivalent to maximizing expected utility when one assigns preferences to rankings of offers. We identify the optimal selling strategy using the technique of Porosinski (1987) and general optimal stopping theory. We show that the optimal strategy is characterized by a non-increasing stochastic set of reservation prices. This is in contrast to the classical search theory models where reservation prices are deterministic. Our analysis also provides theoretical support to the observation that first offers in residential real estate markets should be accepted more often since they tend to be higher than subsequent offers.

About the Speaker

Abdullah Yavas holds the Robert E. Wangard Real Estate Chair and is the department chair of Real Estate and Urban Land Economics at the University of Wisconsin-Madison’s Wisconsin School of Business. Prior to joining Wisconsin, he was the Elliott Professor of Business Administration and Research Director of the Institute for Real Estate Studies at Penn State. In addition, Abdullah was a visiting Professor at the University of Michigan in the Fall of 1995 and a Research Fellow at the University of Illinois during the 1991-1992 academic year. He was awarded Fulbright Scholarship in 2007 and was elected as a Fellow of the Weimer School of Advanced Studies in Real Estate and Land Economics in 2004. Abdullah served as the founding president of International Antalya University, Antalya, Turkey in 2011 and was a visiting Research Fellow at the Hong Kong Institute for Monetary Research during January 2013. He currently serves as the academic and voting member of the monetary policy committee of the Central Bank of Turkey. Currently, Abdullah serves on the editorial boards of Real Estate Economics, Journal of Real Estate Finance and Economics, Journal of Housing Economics and Journal of Real Estate Research. He will be one of the three editors of Real Estate Economics starting in January 2015.

Abdullah’s research interests include Real Estate Brokerage, Mortgage Contracts, Economics of Information, and Experimental Economics. He has published over 55 articles in peer reviewed journals including Real Estate Economics, Journal of Real Estate Finance and Economics, Journal of Urban Economics, Journal of Financial Economics, Journal of Economic Theory, Economic Theory, Games and Economic Behavior, Journal of Financial Intermediation and Journal of Labor Economics. His research was also cited in such popular media outlets as Money, Time, Business Week and Wall Street Journal. Abdullah holds a Ph.D. in economics from the University of Iowa and a B.S. in Business from Bogazici University.

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