Buyer Beware of Cold Snaps
Winter is coming, and you might be tempted to start buying warm clothes, especially on the first day the temperature drops drastically. If so, be careful: You might purchase something you don't really want.
According to standard economic theory, of course, that warning shouldn't be necessary. Human beings are rational, and on an especially cold day, it's perfectly rational to get that winter coat. Psychologists and behavioral economists aren't so sure. They've seen that when people are cold, they often project that feeling onto the future. People display "projection bias" when they underestimate how much their current tastes and values will later change.
Common sense suggests that projection bias is all around us. Talking in a small group of men, a friend of mine recently said, with some emotion, "I knew within an hour of meeting her that my wife was the person I wanted to marry." Another friend responded, "If I had married every woman I knew I wanted to marry within an hour, I would have 15 ex-wives by now." Similarly, folk wisdom says that when buying groceries, you should "never shop on an empty stomach."
For many years, however, there was little systematic evidence to show that projection bias influences the way people buy goods and services. In 2007, economists Michael Conlin, Ted O'Donoghue and Timothy Vogelsang published the results of an ingenious study. Working with a large outdoor-apparel company, they studied 12 million orders of weather-related clothing, including jackets, gloves, boots, hats, vests and parkas. They asked: When people buy clothes on an especially cold day, are they more likely to regret their purchase and return what they bought?
The answer is unambiguous. When the temperature drops significantly on the order date (by 30 degrees Fahrenheit), the overall return rate increases significantly, too (by 3.95 percent). And that increase probably understates the magnitude of people's regret; not everyone will go to the trouble to return items they wish they hadn't bought.
But maybe catalog orders are unusual. Does weather affect people's decisions in other settings?
A more recent study finds that it does. Using nationwide data, Meghan Busse and her co-authors explored purchases of more than 4 million new and used vehicles -- a significant chunk of U.S. automobiles sales. Their question: Does unusual weather make people more likely to purchase a convertible or a 4-wheel drive vehicle?
The results were dramatic. On a day with a mean temperature 20 degrees higher than normal, there is a 5.4 percent increase in the fraction of vehicle purchases that include convertibles. And when there is a snowstorm of 10 inches or more, the fraction of 4-wheel-drive purchases soars, in the next few days, by about 6 percent.
By themselves, these results do not show that people are making mistakes or suffering from projection bias. It's hardly a mistake to get a bowl of warm soup on a cold day, and maybe the day's weather helps consumers discover what kind of vehicle will be best for them. But Busse and her co-authors find no support for this hypothesis in their data, and they offer some strong counterevidence.
An important question is whether convertibles or 4-wheel drives are likely to reappear in the market sooner when they are purchased on days with unusual weather. If they do, there's good reason to suspect the buyers regretted their purchases.
On average, Americans keep their vehicles for a little over five years; only 2.37 percent are sold or traded in within a year. But when convertibles and 4-wheel drives are bought on days with highly unusual weather, they are indeed more likely to be returned within a year.
Busse and her co-authors conclude that projection bias leads vehicle purchasers to give too much influence to short-term weather fluctuations. This conclusion is in line with a growing body of other findings about the impact of weather on people's decisions. Surprising but true: If admitted students visit a college on a cloudy day, they are significantly more likely to choose to enroll, apparently because overcast skies get them to focus on learning and education.
As winter arrives, it makes sense to ask whether you have enough warm clothing (and the right car). But a day of unusual weather can strongly nudge people to spend a lot of money in ways that they will soon regret.
This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.
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Cass R Sunstein at firstname.lastname@example.org
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