Description

What is the projection bias?

It is common knowledge that we don’t always make the best decisions for the future. Behavioral economics seeks to understand why that is so. The projection bias is the tendency to project current preferences into the future as if future tastes will match current ones (Loewenstein, O’Donoghue, and Rabin 2003).

It is also known as the ‘empathy gap’. We are not able to place ourselves in the emotional state of our future selves, and thus make decisions that suit our current selves. We tend to overestimate how much other people are like us too. This is called the false consensus bias.

The projection bias occurs because our predictions are biased by our current emotional states. One possible explanation of projection bias is the false assumption that one’s own beliefs, behaviors, and feelings are accurate and appropriate, and therefore shared by all. In reality, our thoughts and actions are likely idiosyncratic and unlikely to be shared by our future selves. It may also be that our current emotional state forms an “anchoring point” for our thoughts, feelings, and behaviors (Loewenstein, O’Donoghue, and Rabin 2003). When we make decisions about the future we do so with reference to this anchoring point.

Why is it important?

Everyday we make decisions that require us to predict our future preferences or circumstances, but our predictions are not always accurate. Projection bias is problematic when decisions made in the present affect the future, as a choice optimized for our current emotional state is likely not optimal for a future state.  We often end up making decisions that satisfy preferences that exist in the present but not in the future. This is at the heart of our failure to meet long-term goals and our engagement in harmful behaviours such as smoking, over-eating, and over-consumption. When you are in a bad mood, you might quench your immediate desires by eating junk food, despite it running counter to your long-term preference to eat healthier.

Example

One example that we have all encountered is when grocery shopping on an empty stomach we buy more food than we need, and buy types of food that we had not planned to buy- such as junk food (Wilkinson and Klaes 2012; Tal and Wansink 2013). We incorrectly anticipate our future hunger preferences based on the preferences we held while making purchase decisions.

In the Northern Hemisphere, sales of convertibles rise in April in anticipation of sunnier summer months, as a rational economics model would predict, but sales also increase during abnormally sunny weeks in winter months and decline when the clouds return (Busse et al. 2015). Similarly, snowstorms increase the purchases of four-wheel drive cars. The projection bias explains this tendency to make buying decisions while assuming the future will be similar to the present.

Projection bias suggests that current cold weather would increase the desirability of cold-weather clothing. One study found such an effect; data from a catalog of cold-weather items showed that customers were 3.95% more likely to return a purchase for each 30°F decrease in temperature (Conlin, O’Donoghue, and Vogelsang 2007).

We also fail to recognise the power of habit formation- whereby we increasingly make the same decision. This can lead to a bias in future-planning decisions like retirement savings (Loewenstein, O’Donoghue, and Rabin 2003).

Succumbing to addiction is often the result of a failure to correctly estimate the duration of a craving. If a person suffering from addiction can accept that these current feelings will pass in the future, they may be able to resist the cravings (Larimer, Palmer, and Marlatt 1999).  We do this for all types of temptations, and tend to overestimate our ability to resist them. This leads us to expose ourselves to high-temptation situations (Nordgren, Harreveld, and Pligt 2009).

 

 

 

Busse, Meghan R., Devin G. Pope, Jaren C. Pope, and Jorge Silva-Risso. 2015. ‘The Psychological Effect of Weather on Car Purchases’. Quarterly Journal of Economics 130 (1): 371–414.

Conlin, Michael, Ted O’Donoghue, and Timothy J. Vogelsang. 2007. ‘Projection Bias in Catalog Orders’. The American Economic Review 97 (4): 1217–49.

Larimer, M. E., R. S. Palmer, and G. A. Marlatt. 1999. ‘Relapse Prevention. An Overview of Marlatt’s Cognitive-Behavioral Model’. Alcohol Research & Health: The Journal of the National Institute on Alcohol Abuse and Alcoholism 23 (2): 151–60.

Loewenstein, George, Ted O’Donoghue, and Matthew Rabin. 2003. ‘Projection Bias in Predicting Future Utility’. The Quarterly Journal of Economics 118 (4): 1209–48..

Nordgren, Loran F., Frenk van Harreveld, and Joop van der Pligt. 2009. ‘The Restraint Bias: How the Illusion of Self-Restraint Promotes Impulsive Behavior’. Psychological Science 20 (12): 1523–28.

Tal, Aner, and Brian Wansink. 2013. ‘Fattening Fasting: Hungry Grocery Shoppers Buy More Calories, Not More Food’. JAMA Internal Medicine 173 (12): 1146. 

Wilkinson, Nick, and Matthias Klaes. 2012. An Introduction to Behavioral Economics. 2 edition. Houndmills, Basingstoke ; New York, NY: Palgrave Macmillan.

Further Reading

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