Answer to Question 1:

You are shopping for a new house. The real estate agent you are dealing with tells you that a particular house you are especially interested in is a good buy because a new train stop is in the process of being built at the end of the street. The resulting reduction in commuting costs, she claims, will increase future property values in the area. Should you let this argument influence your decision about which house to purchase?

Yes or No!


The answer is no. Since the train stop is in the process of being built, its implications for the cost of commuting are by now well-known to all potential buyers and sellers. You can be sure that the price you are going to have to pay will fully reflect that information.

The fact that a train stop is being constructed would affect your decision to purchase (or not to purchase) if you have information that the rest of the market does not have. Suppose, for example, that you work for the train company and are quite sure that the extra stop at the new station will not be a profitable one, so that the company will eventually have to limit the service to one stop inbound (to the city center) in the morning and one stop outbound in the evening. If you are the only person that knows this, you should be prepared to pay less for the house than otherwise because the market, on the basis of available public information, will overvalue it.

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