Projection Bias in Predicting Future Utility

George Loewenstein, Ted O'Donoghue and Matthew Rabin

Working Papers from Cornell University, Center for Analytic Economics

Abstract: People exaggerate the degree to which their future tastes will resemble their current tastes. We present evidence from a variety of domains which demonstrates the prevalence of such projection bias, develop a formal model of it, and use this model to demonstrate its importance in economic environments. Projection bias leads people to overvalue reference-dependent goods and magnifies the endowment effect. It can cause misguided purchases of durable goods. When there is habit formation, projection bias can lead people to consume too much early in life, and to decide, as time passes, to consume more--and save less--than originally planned.

JEL-codes: A12 B49 D11 D91 E21 (search for similar items in EconPapers)
Date: 2002-07
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Citations: View citations in EconPapers (8)

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https://www.cmu.edu/dietrich/sds/docs/loewenstein/projectionbias.pdf

Related works:
Journal Article: Projection Bias in Predicting Future Utility (2003)
Working Paper: Projection Bias in Predicting Future Utility (2001)
Working Paper: Projection Bias in Predicting Future Utility (2000)
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Persistent link: https://EconPapers.repec.org/RePEc:ecl:corcae:02-11

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