Would you walk away?

With 1 in 4 homeowners underwater, many pundits predict a flood of people walking away from their homes. 5 readers discuss why they are - and are not - sticking around.

1 of 6
BACKNEXT
Fewer walking away than you think
Fewer walking away than you think
The Foretich house in Mississippi
Almost 25% of homeowners, or 10.7 million borrowers, were "underwater" on their mortgages during the third quarter, according to First American CoreLogic. Another 2.3 million are near that drowning point, where you owe more on your loan than your home is worth.

A basic cost-benefit analysis predicts that these people will abandon their homes and accept foreclosure. But there is little data measuring whether that logic holds true. In fact, Eric Johnson, a business professor at Columbia University, believes it doesn't. After years of studying behavioral economics - essentially the economics of choice - he argues that people will simply not make such rational decisions.

"There are two effects that suggest [walk aways] won't happen so easily," he says. "The first is the endowment effect. People tend to value their own house above its market price. Owners don't want to sell at a loss. They have what we call a loss aversion."

The second is that people weigh the importance of immediate outcomes more heavily than long-term effects. Walking away involves upfront expenditures of time, money and effort, while the benefits of walking away are back-loaded.

"People are impatient and weight present costs and benefits more, so they will walk away less often than we might think," Johnson says.

In the following pages are some homeowners who have thought hard about the costs and benefits of walking away from their mortgages.
NEXT: Won't walk: Rich Foretich
Last updated November 24 2009: 11:47 AM ET
Email | Print | Share  |  RSS
 
google my aol my msn my yahoo! netvibes
Paste this link into your favorite RSS desktop reader
See all CNNMoney.com RSS FEEDS (close)
More Galleries
10 of the most luxurious airline amenity kits When it comes to in-flight pampering, the amenity kits offered by these 10 airlines are the ultimate in luxury More
7 startups that want to improve your mental health From a text therapy platform to apps that push you reminders to breathe, these self-care startups offer help on a daily basis or in times of need. More
5 radical technologies that will change how you get to work From Uber's flying cars to the Hyperloop, these are some of the neatest transportation concepts in the works today. More

Special Offer

Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.