American Economic Review Vol. 103 No. 1 2013

Are Consumers Myopic? Evidence from New and Used Car Purchases

Meghan R. Busse¹; Christopher R. Knittel²; Florian Zettelmeyer¹

¹ Kellogg School of Management, Northwestern University, 2001 Sheridan Road, Evanston, IL 60208, and NBER. · ² MIT Sloan School of Management, 100 Main Street, Cambridge, MA 02142, and NBER.

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.

DOI

10.1257/aer.103.1.220

Volume

103

Issue

1

Pages

220-256

Language

en

Sources

openalex bibtex:phds-export.bib crossref

Cite

APA 7 MLA 9 Chicago (author–date) Harvard Elsevier Harvard (JFE, JBF…) The Accounting Review Academy of Management American Marketing Association INFORMS (Management Science) Copy citation Copied ✓