Projection Bias in Durable Goods Investment: Evidence from Solar Panel Adoption in Norway

Massimo Filippini and Cloé Garnache
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Massimo Filippini: Center of Economic Research, Department of Management, Technology, and Economics, ETH Zurich; Università della Svizzera Italiana

No 26/408, CER-ETH Economics working paper series from CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich

Abstract: This paper examines how projection bias—the tendency to over-extrapolate current conditions into the future—shapes household investment in durable goods. Using municipality-level data and a sharp regional electricity price divergence within Norway during the 2022–2023 European energy crisis, we estimate the causal effect of the price shock on residential rooftop solar panel adoption. Municipalities exposed to high electricity prices saw a 556% yearly average increase in new solar capacity and a 458% yearly increase in solar installations relative to unexposed municipalities. Second, we estimate the projection bias using an approach combining reduced-form causal identification with a parsimonious structural model to interpret quasi-experimental estimates. We find that households put about 70% weight on current prices when evaluating long-run profitability. Our findings provide suggestive evidence that projection bias can influence rational investment criteria, with implications for microeconomic theory and policy.

Keywords: Projection bias; Durable goods; Energy price shock; Solar panel adoption; Behavioral bias (search for similar items in EconPapers)
JEL-codes: D12 D84 D91 Q41 Q48 (search for similar items in EconPapers)
Pages: 51 pages
Date: 2026-07
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Persistent link: https://EconPapers.repec.org/RePEc:eth:wpswif:26-408

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