Are Consumers Myopic? Evidence from New and Used Car Purchases
Author(s)Busse, Meghan R; Zettelmeyer, Florian; Knittel, Christopher Roland
MetadataShow full item record
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.
DepartmentSloan School of Management
American Economic Review
American Economic Association
Busse, Meghan R, Christopher R Knittel, and Florian Zettelmeyer. “Are Consumers Myopic? Evidence from New and Used Car Purchases.” American Economic Review 103, no. 1 (February 2013): 220–256. © 2013 by the American Economic Association.
Final published version