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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
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    File URL: http://www.nber.org/papers/w18212.pdf
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    References listed on IDEAS

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    1. 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.
    2. S. Dellavigna., 2011. "Psychology and Economics: Evidence from the Field," VOPROSY ECONOMIKI, N.P. Redaktsiya zhurnala "Voprosy Economiki", vol. 4.
    3. Uri Simonsohn, 2010. "Weather To Go To College," Economic Journal, Royal Economic Society, vol. 120(543), pages 270-280, March.
    4. Berry, Steven & Levinsohn, James & Pakes, Ariel, 1995. "Automobile Prices in Market Equilibrium," Econometrica, Econometric Society, vol. 63(4), pages 841-890, July.
    5. David Laibson, 1997. "Golden Eggs and Hyperbolic Discounting," The Quarterly Journal of Economics, Oxford University Press, vol. 112(2), pages 443-478.
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    Cited by:

    1. repec:oup:amlawe:v:19:y:2017:i:1:p:202-243. is not listed on IDEAS
    2. 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.
    3. 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.
    4. Andrzej Baniak & Peter Grajzl, 2017. "Optimal Liability when Consumers Mispredict Product Usage," American Law and Economics Review, Oxford University Press, vol. 19(1), pages 202-243.

    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

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