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Behavioral biases and risk perception shape real estate investment decisions in ways that extend beyond the assumptions of rational choice theory. Classical Financial valuations may be logical on paper. However, these calculations neglect the fact that finance involves different psychological dimensions of risk perception. For example, individuals tend to underestimate losses but approach gains with overconfidence. This paper addresses that gap by combining a systematic literature review and a highstakes real estate choice experiment. The findings reveal that individuals exhibit risk aversions stronger than predicted by models. It also revealed that while biases such as Loss Aversion or Herding are significantly consequential, other biases also manifest to a different extent under environmental cues. The choice experiment further demonstrated that intentionally nudged biased scenarios create polarized risk preferences. Overall, the paper highlights the limitations of traditional models such as the Expected Utility Theory (EUH) and the Capital Asset Pricing Model (CAPM) in explaining psychological drivers in finance. By integrating behavioral insights into real estate investment analysis, a more nuanced and interdisciplinary understanding of human behavior in the financial market would be applied, benefiting both investors and policymakers.
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