Projection Bias in Predicting Future Utility

George Loewenstein, Ted O'Donoghue and Matthew Rabin

Department of Economics, Working Paper Series from Department of Economics, Institute for Business and Economic Research, UC Berkeley

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.

Keywords: Addiction; consumption; cooling off; misprediction; projection bias; reference dependence (search for similar items in EconPapers)
Date: 2000-06-06
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (16)

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Related works:
Journal Article: Projection Bias in Predicting Future Utility (2003)
Working Paper: Projection Bias in Predicting Future Utility (2002)
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Persistent link: https://EconPapers.repec.org/RePEc:cdl:econwp:qt5qh6142m

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