Projection Bias in the Car and Housing Markets

67 Pages Posted: 7 Jul 2012

See all articles by Meghan R. Busse

Meghan R. Busse

University of California, Berkeley - Haas School of Business

Devin G. Pope

University of Chicago - Booth School of Business

Jaren Pope

Brigham Young University

Jorge M. Silva-Risso

University of California, Riverside (UCR) - A. Gary Anderson Graduate School of Management

Date Written: July 2012

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

Busse, Meghan R. and Pope, Devin G. and Pope, Jaren and Silva-Risso, Jorge M., Projection Bias in the Car and Housing Markets (July 2012). NBER Working Paper No. w18212. Available at SSRN: https://ssrn.com/abstract=2101959

Meghan R. Busse (Contact Author)

University of California, Berkeley - Haas School of Business ( email )

2220 Piedmont Avenue, #1900
Berkeley, CA 94720-1900
United States
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510-643-5180 (Fax)

HOME PAGE: http://faculty.haas.berkeley.edu/meghan/index.html

Devin G. Pope

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

Jaren Pope

Brigham Young University ( email )

Jorge M. Silva-Risso

University of California, Riverside (UCR) - A. Gary Anderson Graduate School of Management ( email )

Riverside, CA 92521
United States

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