Projection Bias in Predicting Future Utility

George Loewenstein (), Ted O'Donoghue and Matthew Rabin
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Ted O'Donoghue: Cornell University
Matthew Rabin: University of California, Berkeley

General Economics and Teaching from EconWPA

Abstract: People underappreciate how their own behavior and exogenous factors affect their future utility, and thus exaggerate the degree to which their future preferences resemble their current preferences. We present evidence which demonstrates the prevalence of such projection bias, and develop a formal model that draws out both descriptive and welfare implications of the bias. The model helps interpret established behavioral anomalies such as the endowment effect, and helps to explain commonly observed suboptimal patterns of behavior such as addiction and excessive pursuit of a high material standard of living. The model also suggests potentially welfare-improving policies, such as mandatory "cooling-off periods" for certain types of consumer decisions.

JEL-codes: A12 B49 D11 D91 E21 (search for similar items in EconPapers)
Date: 2001-01-05
Note: 52 pages, Acrobat .pdf
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http://129.3.20.41/eps/get/papers/0012/0012003.pdf (application/pdf)

Related works:
Working Paper: Projection Bias in Predicting Future Utility (2000)
Working Paper: Projection Bias in Predicting Future Utility (2000)
Journal Article: Projection Bias In Predicting Future Utility (2003)
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Persistent link: http://EconPapers.repec.org/RePEc:wpa:wuwpgt:0012003

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