The impact of superstition: Writing on the wall

It’s not often that a business school professor gets to quote from a legend in the world of funk music, so let me begin with a few words from Stevie Wonder:

When you believe in things that you don’t understand,
Then you suffer.
Superstition ain’t the way

Three lines from the 1972 hit Superstition sum up a common issue in many cultures. No matter how advanced and rational we might like to think we are, superstition is a practice that remains widespread and has an impact – often detrimental – on our economic lives.

Studies have shown, for example, that many people behave more cautiously when making financial decisions on Friday 13th than on any other day of the month. Likewise many commercial and residential tower blocks in the US and other countries around the world don’t have a 13th floor. Those that do, may find they have to offer special discounts to entice tenants.

And in many countries horoscopes remain a popular feature of newspapers, guiding readers and frequently focusing on the optimal times to make or avoid key financial decisions and transactions.

So do we “suffer” – as Stevie Wonder suggests – financially and economically speaking, as a result of superstition?

Even in countries ranked as highly educated, superstitious practices persist when logic suggests that more rational behaviour brought about by education means they should be swept aside.

In Singapore for example, ranked among the most highly educated societies in the world, the numbers 8 and 4 still carry particular significance for many in the majority Chinese community.

While superstitions might be seen at face value to be harmless quirks, when they impact consumer decisions they produce a cost

In Chinese culture eight is traditionally believed to be lucky as it sounds similar to “prosperity”, while four – sounding like the word for “death” – is believed to be unlucky.

The Beijing Olympics was a prominent example of this, with the opening ceremony timed to kick off and at precisely 8:08pm on the eighth day of the eighth month, 2008.

While superstitions such as this might be seen at face value to be harmless quirks, when they impact consumer decisions they produce a cost.

Taken cumulatively, those costs can then impact on national development and welfare.

Why then does superstition persist in advanced economies and even among educated people?

Enduring beliefs

Psychologists and anthropologists suggest that individuals who follow superstitious practices do so to cope with misfortune and uncertainty and to make sense of a complex world.

luck8ball280Other research has suggested that superstitious beliefs can endure if the probability of them being exposed as untrue is low. If there is always some chance of a bad outcome when following superstition and some chance of a good outcome when not, an individual might never realise that it is untrue and continue to follow it.

Whatever the reasoning, given its potential impact on human and economic development, understanding and quantifying the impact superstition has on our economic lives is important for a variety of reasons, especially in guiding and developing policy.

In particular it can help measure the benefits from investing in education, to the extent that such investment reduces the tendency to follow superstitious practices, as well as developing skills and building knowledge.

Given the essential role of well-functioning asset markets in economic development, it is also important to gauge the impact, if any, that superstition has on those markets.

For example, if superstitious beliefs affect price signals, the allocation of resources may be distorted, with negative implications for welfare and economic growth.

One recent academic study for example examined IPOs on the Shenzhen and Shanghai stock exchanges in China between 1991 and 2005 where listed companies are identified by a numerical code.

The study found that, consistent with Chinese superstition over the numbers eight and four, newly listed, ostensibly “lucky” shares (i.e. with codes that included at least one lucky digit and no unlucky digit) initially traded at a premium.

That “luck”, however, was found not to be permanent with the premium dissipating within three years.

Lucky homes

Returning to the example of Singapore, studying the effect of superstition on housing prices in the city offers a good case for measuring the magnitude and economic impact of superstitious practices.

housing280Not only does Singapore’s ethnic make-up offer an ideal cultural mix for such a study, but government regulations specifically prohibit omitting sequential numbers in floor and unit numbers, or any kind of selective numbering more desirable properties.

In our research we examined how traditional perceptions of lucky and unlucky numbers – 8s and 4s – affect new sales in the city’s housing market.

In advanced economies more people buy homes than invest in other assets like equities, so investigating the effect of superstitious beliefs on the pricing of residential property gives a broad view on their impact.

Looking at data from almost 50,000 transactions between 2000 and 2009 on the private high-rise real estate market, we found that relatively fewer Singaporean Chinese bought units of floors ending with 4.

Moreover, on a per square metre basis, units with numbers ending in 4 were discounted by 1.1 percent and units located on the 4th floor were discounted by 0.5 percent.

Conversely units with numbers ending in 8 commanded a 0.9 percent premium.

Additionally, the data indicated that preference for lucky numbers might be seen as a “luxury” with the premium for units ending with a “lucky” 8 higher in the more expensive parts of Singapore.

And there was some evidence that home buyers behaved more superstitiously in times of economic troubles, with the premium for “lucky” units higher during times of slowing growth or volatility.

execprogrammeThis would support the theory that people rely more on superstition when facing uncertainty.

So do these “lucky” residences pay off for their owners? This is an important test of the rationality of perceived “lucky-ness” behind residential numbers.

Well, perhaps unsurprisingly, our data showed that living in a lucky apartment had zero effect on the likelihood of their residents being involved in a car accident.

Indeed the probability of them having such a misfortune was no different from those residing in “unlucky” numbered apartments.

At the same time, looking at selected insurance data, our research found that overall Chinese living in units ending with the “lucky” 8 bought relatively less insurance coverage.

This raises a significant real consequence of superstition, with these home owners exposing themselves to the risk that they would be inadequately covered in the event of fire of theft.

There are of course other factors that might influence the premium places on so-called “lucky” units, not least that of conspicuous consumption. We see this in the high prices paid for lucky car license plates, for example, as a way to show of wealth.

Nonetheless, our research clearly shows that superstitious practices remain influential even in advanced economies such as Singapore.

It also shows that beliefs about lucky and unlucky numbers are indeed pure superstition.

That raises questions for policy makers about whether and how to address superstition as an impediment to innovation and growth, and how to effectively correct such beliefs and practices – for example through education and changed regulations.

This commentary is based on the research paper Superstition and Asset Markets: Evidence from Singapore Housing written by Sumit Agarwal, Low Tuck Kwong Professor, Departments of Economics, Finance and Real Estate at the National University of Singapore (NUS), in cooperation with Jia He,  NUS Department of Real Estate; Haoming Liu, NUS Department of Economics; Ivan P. L. Png, NUS Business School; Tien Foo Sing, NUS Department of Real Estate; and Wei-Kang Wong, NUS Department of Economics.

  • Author Profile

    Sumit Agarwal is Professor of Finance and Real Estate, Low Tuck Kwong Professor and Deputy Head (Research) of the Department of Real Estate at NUS. He is also the Research Director at the Centre for Asset Management Research & Investments (CAMRI) at NUS Business School.

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