Research

Energy Institute at Haas

Research

EI @ Haas Working Paper WP-201R Abstract

Meghan R. Busse, Christopher R. Knittel and Florian Zettelmeyer, "Are Consumers Myopic? Evidence from New and Used Car Purchases" (December 2009) (Revised version published in The American Economic Review, 103(1), February 2013).  Full Paper

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.