Ireland’s economic crisis has its roots in a housing bubble that collapsed in 2007. This paper examines the behaviour of Irish people who purchased one or more residential properties for investment purposes prior to the global financial crisis in 2007.

During the period that constituted Ireland’s residential property bubble, many people were not satisfied with acquiring a house solely as a dwelling and doubled their bets by acquiring other properties for investment purposes. In many cases the prices paid for these properties were uneconomical vis-a-vis the rental income stream associated with them. In the case of overseas properties many investors made purchase decisions without even gathering the most basic information on the suitability of these properties as potential investments. We consider the behavioural and psychological factors that drove Irish residents in the acquisition of one or more residential property for investment both in Ireland and within the continent of Europe, North America and South Africa.

The biases we examined were, Representativeness, Overconfidence and Availability. We find evidence that due to the representativeness heuristic, investors may have been over-extrapolating the past growth into the future. In addition, lenders also over-extrapolated the increase in house prices and made credit easily available, largely financed by deposits from financial institutions in other euro area countries. People over estimated the precision of their forecasts, when for example, in an effort to estimate an asset’s value, they become overconfident about the usefulness of this information gathered for this purpose. For example, groupthink and media cheerleading whereby only favourable information and positive news in relation to real estate values was reported in the media despite a series of international reports, including those from the OECD and the IMF, warning that property values were too high based on economic fundamentals. Such asymmetric media reporting may have exacerbated investors overconfidence leading them to see property as a one way bet which in turn leads them to push the price of the asset higher with upward price movements becoming a self-fulfilling prophecy. (Daniel, Hirshleifer, Subrahmanyam, 1998). In terms of Availability, the Irish media were almost without exception cheerleaders for the booming property market, only dampening their enthusiasm months after prices had started to decline in late 2007.