Working Paper: NBER ID: w18212
Authors: Meghan R. Busse; Devin G. Pope; Jaren C. Pope; Jorge Silvarisso
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.
Keywords: Projection Bias; Consumer Behavior; Car Market; Housing Market
JEL Codes: D03; D12; L62
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Weather conditions at the time of purchase (Q54) | types of vehicles and houses consumers choose (R22) |
| 20-degree increase in temperature (Q54) | 0.22 percentage point increase in convertible vehicle sales (L62) |
| Snowstorm of approximately 10 inches (Q54) | increase in fraction of 4-wheel drive vehicles sold (L62) |
| Presence of a swimming pool in summer (Q26) | increase in value of a house sold (R31) |
| Abnormal weather conditions (Q54) | consumer purchasing behavior (D19) |