8/10/2019 Weather Can Play Role in Big Ticket Buying Decisions

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Weather Can Play Role in Big-Ticket Buying Decisions

By

Shawn Bender

Some people fall into a psychological trap when weighing a purchase. Overwhelmed by their

feelings, influenced by the conditions of the moment, they fail to see how their preferences might

change when those conditions change as well. This state of mind, rooted in a common but

irrational bias, can distort their perception of value. They might be lulled into buying now when

under different circumstances they wouldnt, or they might pay too much.

Bloomberg NewsYou may want to wait for a rainy day to test-drive that convertible.Economists

have tried to place some structure around this notion of projection bias, defined generally as the

tendency to overestimate how much future tastes will match current ones. A formal model by

George Loewenstein, Ted ODonoghue and Matthew Rabin was published in the Quarterly Journal

of Economics in 2003. And more recent research has brought to light its influence on relativelyinexpensive goods like clothing.

But what about big-ticket items? Theres a lot of money tied up in them. Are people similarly

irrational when considering even expensive purchases like these? A recent study says yes, a

finding that suggests just how robust and durable this phenomenon might be.

It turns out that weather conditions at the time of purchase can affect the way people value

houses and cars, two of the bigger purchases they make during their lifetimes, according to a

working paper by economists Meghan R. Busse, Devin G. Pope, Jaren C. Pope and Jorge Silva-Risso.

People are more likely to pay a premium for a house with a swimming pool if they go to contract in

summer heat rather than winter chill, or to fall in love with a convertible on an unseasonably

warm day with clear skies even though the weather at purchase time has little to do with the

value theyll derive from using these things in the long run.

You are overly influenced by how much youre going to like it right now, Busse, an Associate

Professor of Management and Strategy at Northwestern Universitys Kellogg School of

Management, said in an interview. When its sixty in Chicago in February, you dont think its

always going to be sixty. But somehow it just seems like wouldnt be great to own a convertible?

A few people are going to say that really would be a good idea.

In their paper, Projection Bias in the Car and Housing Markets, Busse and her coauthors

analyzed data from 40 million car sales across the country. They tried to isolate unusual weather

conditions as a variable by controlling for factors like seasonal sales patterns. They found that

when the mean temperature was 20 degrees higher than normal in a location, convertible sales as

a proportion of all car sales rose by 0.22 point, with large and significant effects in the spring

and fall. That meant an 8.5% rise in the fraction of convertibles among all car sales. A somewhat

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similar finding resulted from their study of four-wheel-drive vehicle sales during times of heavy

snowfall.

In the housing market, they examined four million properties that had been sold at least twice

between 1998 and 2008. They used contract dates the time of decision that were estimated

to have been two months prior to closing. Homes with a pool sold for about $1,600 more onaverage in the summer than the winter. The difference couldnt be explained by so -called

immediate utility gains the idea that buyers might have been willing to pay more in the summer

because they could start using the pools right away since there was a lag between the contract

and move-in dates. And further evidence of bias emerged when they looked at houses that were

estimated to have gone to contract in August. Pools added significant value to homes in that

month, even though buyers werent likely to move in until October, when using the pools probably

wouldnt have been an option for them.

It may be difficult to draw sweeping conclusions from just one analysis. But if projection bias is

strong enough to influence at least some of lifes most important buying decisions, then its

worthy of further study, the authors conclude, and may even suggest the need to consider more

laws that create cooling-off periods to protect consumers for whom this kind of bias can trump

reason.

Part of the value of this is just pointing out to consumers that they can be influenced by things,

Busse said. Ask yourself, Do I really want this? Should I wait for another week to see if I want it

then as much as I want it today?