Are Consumers Myopic? Evidence from New and Used Car Purchases

Meghan R. Busse, Christopher Knittel and Florian Zettelmeyer

American Economic Review, 2013, vol. 103, issue 1, 220-56

Abstract: We investigate whether car buyers are myopic about future fuel costs. We estimate the effect of gasoline prices on short-run equilibrium prices of cars of different fuel economies. We then compare the implied changes in willingness-to-pay to the associated changes in expected future gasoline costs for cars of different fuel economies in order to calculate implicit discount rates. Using different assumptions about annual mileage, survival rates, and demand elasticities, we calculate a range of implicit discount rates similar to the range of interest rates paid by car buyers who borrow. We interpret this as showing little evidence of consumer myopia. (JEL D12, H25, L11, L62, L71, L81)

JEL-codes: D12 H25 L11 L62 L71 L81 (search for similar items in EconPapers)
Date: 2013
Note: DOI: 10.1257/aer.103.1.220
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Citations: View citations in EconPapers (318)

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