The Iron Law of House Prices

Irish economist Morgan Kelly wrote a classic paper on the likely extent of falls in Irish house prices. He was roundly criticised for saying that Ireland's no different to any other economy, everyone believes this time is different. But housing markets are better modelled as information cascades and where people make decisions subsequently or sequentially. So if I go downstairs and buy an martini, I'm signaling through my public action that I have some private information about the value of the espresso. Henry sees that Joe and Claire have both bought martinis and it must be persuasive that we know something that she doesn't - so he decides to use that as a shortcut into making his own decision.