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Portfolio Choice with House Value Misperception

We use data on self-reported and market house values to present empirical evidence of house value misperception at the household level. We build an optimal portfolio choice model that features misperception, as observed in the data. In the model, households make consumption and portfolio decisions on housing and non-housing assets with transaction costs in the housing adjustments. They use subjective housing valuations, which may differ from market values, and decide each period whether to pay for observing the market value or not. Our model delivers several empirical implications that we test using household-level data