Are consumers myopic? Evidence from new and used car purchases

Meghan R. Busse*, Christopher R. Knittel, Florian Zettelmeyer

*Corresponding author for this work

Research output: Contribution to journalArticle

158 Scopus citations

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.

Original languageEnglish (US)
Pages (from-to)220-256
Number of pages37
JournalAmerican Economic Review
Volume103
Issue number1
DOIs
StatePublished - Feb 1 2013

ASJC Scopus subject areas

  • Economics and Econometrics

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