Projection Bias in the Car and Housing Markets
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.
We are grateful to Chris Bruegge and Ezra Karger for valuable research assistance. We also thank Stefano DellaVigna, Emir Kamenica, Ulrike Malmendier, Ted O'Donoghue, Loren Pope, Mathew Rabin, Dick Thaler, and seminar participants at the Behavioral Economics Annual Meeting, Columbia University, Cornell University, Harvard Business School, MIT, Stanford University, UC Berkeley, UC Los Angeles, UC San Diego, UC Santa Barbara, University of Chicago, University of Illinois, University of Zurich, and Yale University for helpful suggestions. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.