Projection Bias in the Housing and Car Markets

Projection bias is the tendency to overpredict the degree to which our future tastes will resemble our current tastes. This bias underlies the popular adage: never shop on an empty stomach. We test for evidence of projection bias in two of the largest and most important consumer markets the housing and car markets. Using data for more than four-million housing purchases and fortymillion car transactions, we explore the impact of weather on purchasing decisions. We find that the value that a swimming pool adds to a house is, on average, $1400 more when the house goes under contract in the summertime compared to the wintertime. Similarly, we find that sales of convertibles and 4-wheel drive vehicles are highly dependent on the weather at the time of purchase in a way that is inconsistent with classical utility theory. ___________________________________________________ *Busse: Kellogg School of Management, Northwestern University and NBER; D. Pope: Booth School of Business, University of Chicago and NBER; J. Pope: Department of Economics, Brigham Young University; Silva-Risso: School of Business Administration, UC Riverside. We are grateful to Ezra Karger for valuable research assistance. We also thank Emir Kamenica, Dick Thaler, and seminar participants at the University of Chicago, Cornell University, and Yale University for helpful suggestions.