Psychologists have long been aware of a curious phenomenon known as “projection bias.” We tend to think the future will resemble the present more closely than it actually does. So, for example, studies have found that shoppers who buy groceries for the week on an empty stomach tend to buy far more food (and more junk food) than they end up needing. When you're hungry, you expect you'll always want a lot of food.
But it turns out that projection bias can be surprisingly pervasive and affects even massive purchases like cars and homes. A new NBER paper (pdf) finds that abnormal weather can dramatically shape our buying habits. People are far more likely to buy SUVs with four-wheel drive when it's snowing, or overvalue homes with swimming pools when the sun is scorching — and often end up lamenting the purchases later.
The economists, Meghan R. Busse, Devin G. Pope, Jaren C. Pope, and Jorge Silva-Risso, pored through data from 40 million vehicle sales and 4 million home sales. They found that weather can have a sweeping effect. Take car sales: If the weather is 20 degrees warmer than the seasonal average, sales of convertibles shoot up 8.5 percent. (The authors control for climate and region.) A bright day with clear skies will reduce the number of black-colored vehicles sold. Conversely, when it's snowing, sales of rugged SUVs with four-wheel drive shoot up.
Okay, no big deal, right? Except, as the economists found, many people end up later regretting their weather-influenced purchases. "[A] vehicle is more likely to be returned quickly," the authors note, "when purchased on a day with abnormal weather—evidence in favor of projection bias."
A similar bias occurs with homes. Purchasing a house is a major endeavor, one in which we'd expect the buyer to carefully weigh the pros and cons of every feature and facet. And yet, the paper finds, seasonal differences and weather can greatly sway this decision. A swimming pool adds, on average, $1,600 more to a home's value when the house is on sale during the summer than it does during the winter. The same goes for central air conditioning.
In theory, that's odd. Houses, after all, last for many years. A pool should be equally valuable in a given location no matter when the home is actually purchased. But buyers don't find a pool nearly as attractive when they're making decisions in the winter—they have different ideas about how often the pool will be used, or how enjoyable swimming might be, than they do when house-hunting in the summer. It's hard to imagine a future that's significantly different from the present.
"Many of the most important decisions that we make in life," the authors note, "involve predicting our future preferences." And here's at least one piece of evidence suggesting that these predictions can be quite flawed.