Now in city A, this neighborhood is the best there is, all others are less affluent with lesser quality schools, shopping, etc. This is where the city's wealthy live.

In city B, this neighborhood is the least affluent , all other neighborhoods have better schools, better shopping, and more intellectual neighbors. This is where the city's poor live.

Which of these 2 neighborhoods would be more appealing for you to buy a house in?

That WAS the same phenomena here in Michigan until reality set in. For $280k-$360k you too could get over your head and buy one...or a couple. Now, the market is flooded, values are dropping like a stone in most places and many banks are now taking the pleasure of trying to sell off a bunch of foreclosed houses in a flooded market.

The days of the starter castles appear to be over...here at least.

Basically re-word the theory from buying a house, to buying in a neighborhood, and you'll see the same result. "buy the smallest house in the best neighborhood you can afford." is really no different from buying the best house in the neighborhood.

But it's precisely the opposite of what Frank predicts. Theoretically, I should prefer the same house among inferior others vice among equals or betters; I don't.

My preference for the better neighborhood has nothing to do with lording over those in lesser neighborhoods. After all, they don't see my house. The preference is for based on aesthetics (nicer houses are better to look at), investment, having neighbors of high education, better schools, better shopping, and so forth.

Certainly, I’d much rather have a mediocre house in a gorgeous community than the exact same house in a slum.

Add to this that the nicer neighborhood probably has better services and better schools and the decision is even easier.

I think this goes more to show the problem with these type of studies than what people do in the real world.

It seems to me that preferring a more affluent neighborhood over a less affluent one is the same choice as preferring a larger house over a smaller one, only the comparison is at the neighborhood level, not house level. People who buy a small house is a higher-priced neighborhood are "lording over" those in the lower-priced neighborhood just as much as someone who buys the biggest house in the neighborhood.

Basically re-word the theory from buying a house, to buying in a neighborhood, and you'll see the same result. "buy the smallest house in the best neighborhood you can afford." is really no different from buying the best house in the neighborhood.

I don't like that type of home, so I got a smaller home on a bigger lot with mature trees.

To each their own, but most people like the larger houses crammed on a small lot, so 3000 becomes the new normal.