IDEAS home Printed from https://ideas.repec.org/p/nbr/nberwo/18212.html
   My bibliography  Save this paper

Projection Bias in the Car and Housing Markets

Author

Listed:
  • Meghan R. Busse
  • Devin G. Pope
  • Jaren C. Pope
  • Jorge Silva-Risso

Abstract

Projection bias is the tendency to overpredict the degree to which one's future tastes will resemble one's current tastes. We test for evidence of projection bias in two of the largest and most important consumer markets - the car and housing markets. Using data for more than forty million vehicle transactions and four million housing purchases, we explore the impact of the weather on purchasing decisions. We find that the choice to purchase a convertible, a 4-wheel drive, or a vehicle that is black in color is highly dependent on the weather at the time of purchase in a way that is inconsistent with classical utility theory. Similarly, we find that the hedonic value that a swimming pool and that central air add to a house is higher when the house goes under contract in the summertime compared to the wintertime.

Suggested Citation

  • Meghan R. Busse & Devin G. Pope & Jaren C. Pope & Jorge Silva-Risso, 2012. "Projection Bias in the Car and Housing Markets," NBER Working Papers 18212, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:18212
    Note: IO LS
    as

    Download full text from publisher

    File URL: http://www.nber.org/papers/w18212.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Stefano DellaVigna, 2009. "Psychology and Economics: Evidence from the Field," Journal of Economic Literature, American Economic Association, vol. 47(2), pages 315-372, June.
    2. David Laibson, 1997. "Golden Eggs and Hyperbolic Discounting," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 112(2), pages 443-478.
    3. Steven D. Levitt & Chad Syverson, 2008. "Market Distortions When Agents Are Better Informed: The Value of Information in Real Estate Transactions," The Review of Economics and Statistics, MIT Press, vol. 90(4), pages 599-611, November.
    4. Loewenstein, George, 1996. "Out of Control: Visceral Influences on Behavior," Organizational Behavior and Human Decision Processes, Elsevier, vol. 65(3), pages 272-292, March.
    5. Uri Simonsohn, 2010. "Weather To Go To College," Economic Journal, Royal Economic Society, vol. 120(543), pages 270-280, March.
    6. Berry, Steven & Levinsohn, James & Pakes, Ariel, 1995. "Automobile Prices in Market Equilibrium," Econometrica, Econometric Society, vol. 63(4), pages 841-890, July.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Andrzej Baniak & Peter Grajzl, 2017. "Optimal Liability when Consumers Mispredict Product Usage," American Law and Economics Review, American Law and Economics Association, vol. 19(1), pages 202-243.
    2. Katharina Dowling & Daniel Guhl & Daniel Klapper & Martin Spann & Lucas Stich & Narine Yegoryan, 2020. "Behavioral biases in marketing," Journal of the Academy of Marketing Science, Springer, vol. 48(3), pages 449-477, May.
    3. Keys, Benjamin J. & Pope, Devin G. & Pope, Jaren C., 2016. "Failure to refinance," Journal of Financial Economics, Elsevier, vol. 122(3), pages 482-499.
    4. Giovanna d’Adda & Yu Gao & Russell Golman & Massimo Tavoni, 2018. "It’s So Hot in Here: Information Avoidance, Moral Wiggle Room, and High Air Conditioning Usage," Working Papers 2018.07, Fondazione Eni Enrico Mattei.
    5. Kate Ho & Joseph Hogan & Fiona Scott Morton, 2017. "The impact of consumer inattention on insurer pricing in the Medicare Part D program," RAND Journal of Economics, RAND Corporation, vol. 48(4), pages 877-905, December.
    6. Sophie Clot & Gilles Grolleau & Lisette Ibanez, 2020. "Projection bias in environmental attitudes and behavioral intentions," CEE-M Working Papers hal-02874044, CEE-M, Universtiy of Montpellier, CNRS, INRA, Montpellier SupAgro.
    7. Evan Herrnstadt & Richard L. Sweeney, 2017. "What Lies Beneath: Pipeline Awareness and Aversion," NBER Working Papers 23858, National Bureau of Economic Research, Inc.
    8. Michael Grubb, 2015. "Behavioral Consumers in Industrial Organization: An Overview," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 47(3), pages 247-258, November.
    9. Teresa Briz & Andreas Drichoutis & Lisa House, 2015. "Examining projection bias in experimental auctions: the role of hunger and immediate gratification," Agricultural and Food Economics, Springer;Italian Society of Agricultural Economics (SIDEA), vol. 3(1), pages 1-17, December.
    10. Martínez-de-Albéniz, Victor & Belkaid, Abdel, 2021. "Here comes the sun: Fashion goods retailing under weather fluctuations," European Journal of Operational Research, Elsevier, vol. 294(3), pages 820-830.
    11. Tscharaktschiew, Stefan, 2016. "The private (unnoticed) welfare cost of highway speeding behavior from time saving misperceptions," Economics of Transportation, Elsevier, vol. 7, pages 24-37.
    12. d’Adda , Giovanna & Gao , Yu & Golman, Russell & Tavoni, Massimo, 2018. "It’s So Hot in Here: Information Avoidance, Moral Wiggle Room, and High Air Conditioning," CSI: Climate and Sustainable Innovation 269535, Fondazione Eni Enrico Mattei (FEEM).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Mattauch, Linus & Hepburn, Cameron & Stern, Nicholas, 2018. "Pigou pushes preferences: decarbonisation and endogenous values," INET Oxford Working Papers 2018-16, Institute for New Economic Thinking at the Oxford Martin School, University of Oxford.
    2. Stefan Lamp, 2023. "Sunspots That Matter: The Effect of Weather on Solar Technology Adoption," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 84(4), pages 1179-1219, April.
    3. Katharina Dowling & Daniel Guhl & Daniel Klapper & Martin Spann & Lucas Stich & Narine Yegoryan, 2020. "Behavioral biases in marketing," Journal of the Academy of Marketing Science, Springer, vol. 48(3), pages 449-477, May.
    4. Allcott, Hunt & Mullainathan, Sendhil & Taubinsky, Dmitry, 2014. "Energy policy with externalities and internalities," Journal of Public Economics, Elsevier, vol. 112(C), pages 72-88.
    5. Marco Fabbri & Michael Faure, 2018. "Toward a “constitution” for behavioral policy-making," International Review of Economics, Springer;Happiness Economics and Interpersonal Relations (HEIRS), vol. 65(3), pages 241-270, September.
    6. Ubfal, Diego, 2016. "How general are time preferences? Eliciting good-specific discount rates," Journal of Development Economics, Elsevier, vol. 118(C), pages 150-170.
    7. Mattauch, Linus & Hepburn, Cameron & Spuler, Fiona & Stern, Nicholas, 2022. "The economics of climate change with endogenous preferences," Resource and Energy Economics, Elsevier, vol. 69(C).
    8. Persichina, Marco, 2016. "Present Bias in Renewable Resources Management Reduces Agent’s Welfare," MPRA Paper 86697, University Library of Munich, Germany, revised 30 Nov 2017.
    9. Rao, Raghunath Singh & Irwin, Julie & Liu, Zhuping, 2020. "Flying with a net, and without: Preventative devices and self-control," International Journal of Research in Marketing, Elsevier, vol. 37(3), pages 521-543.
    10. Dolan, P. & Hallsworth, M. & Halpern, D. & King, D. & Metcalfe, R. & Vlaev, I., 2012. "Influencing behaviour: The mindspace way," Journal of Economic Psychology, Elsevier, vol. 33(1), pages 264-277.
    11. Greene, David L., 2011. "Uncertainty, loss aversion, and markets for energy efficiency," Energy Economics, Elsevier, vol. 33(4), pages 608-616, July.
    12. Lades, Leonhard K., 2014. "Impulsive consumption and reflexive thought: Nudging ethical consumer behavior," Journal of Economic Psychology, Elsevier, vol. 41(C), pages 114-128.
    13. Leonhard K. Lades & Ewa Zawojska & Robert J. Johnston & Nick Hanley & Liam Delaney & Mikołaj Czajkowski, 2022. "Anomalies or Expected Behaviors? Understanding Stated Preferences and Welfare Implications in Light of Contemporary Behavioral Theory," Working Papers 2022-20, Faculty of Economic Sciences, University of Warsaw.
    14. Persichina, Marco, 2019. "Present Bias in Renewable Resources Management Reduces Agent’s Welfare," MPRA Paper 97986, University Library of Munich, Germany, revised 10 Dec 2019.
    15. Sebastian Krugel & Matthias Uhl, 2021. "The Behavioral Economics of Intrapersonal Conflict: A Critical Assessment," Papers 2101.12526, arXiv.org.
    16. Frank Sloan & Lindsey Eldred, 2015. "Do preferences of drinker-drivers differ?," International Journal of Health Economics and Management, Springer, vol. 15(2), pages 241-268, June.
    17. Lillemo, Shuling Chen, 2014. "Measuring the effect of procrastination and environmental awareness on households' energy-saving behaviours: An empirical approach," Energy Policy, Elsevier, vol. 66(C), pages 249-256.
    18. Tasoff, Joshua & Letzler, Robert, 2014. "Everyone believes in redemption: Nudges and overoptimism in costly task completion," Journal of Economic Behavior & Organization, Elsevier, vol. 107(PA), pages 107-122.
    19. Tam, Leona & Dholakia, Utpal M., 2011. "Delay and duration effects of time frames on personal savings estimates and behavior," Organizational Behavior and Human Decision Processes, Elsevier, vol. 114(2), pages 142-152, March.
    20. Damgaard, Mette Trier & Nielsen, Helena Skyt, 2018. "Nudging in education," Economics of Education Review, Elsevier, vol. 64(C), pages 313-342.

    More about this item

    JEL classification:

    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • L62 - Industrial Organization - - Industry Studies: Manufacturing - - - Automobiles; Other Transportation Equipment; Related Parts and Equipment

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:18212. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/nberrus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.