The Psychological Effect of Weather on Car Purchases

Meghan R. Busse, Devin Pope, Jaren Pope and Jorge Silva-Risso

The Quarterly Journal of Economics, 2015, vol. 130, issue 1, 371-414

Abstract: When buying durable goods, consumers must forecast how much utility they will derive from future consumption, including consumption in different states of the world. This can be complicated for consumers because making intertemporal evaluations may expose them to a variety of psychological biases such as present bias, projection bias, and salience effects. We investigate whether consumers are affected by such intertemporal biases when they purchase automobiles. Using data for more than 40 million vehicle transactions, we explore the impact of weather on purchasing decisions. We find that the choice to purchase a convertible or a four-wheel-drive is highly dependent on the weather at the time of purchase in a way that is inconsistent with classical utility theory. We consider a range of rational explanations for the empirical effects we find, but none can explain fully the effects we estimate. We then discuss and explore projection bias and salience as two primary psychological mechanisms that are consistent with our results. JEL Codes: D03; D12.

Date: 2015
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