Consumer Myopia in Vehicle Purchases: Evidence from a Natural Experiment

A central question in the analysis of fuel economy policy is whether consumers are myopic with regards to future costs. We provide first evidence on consumer valuation from a natural experiment that provides exogenous variation ratings. examine short-run equilibrium effects restatement ratings affected 1.6 million vehicles. Using implied changes willingness pay, we find act myopically: indifferent between $1.00 discounted costs and $0. 16–0.39 purchase price when discounting at 4 percent. This undervaluation persists under wide range assumptions. (JEL D12, L62, L71, L11)