In behavioral economics, projection bias refers to people’s assumption that their tastes or preferences will remain the same over time (Loewenstein et al., 2003). Both transient preferences in the short-term (e.g. due to hunger or weather conditions) and long-term changes in tastes can lead to this bias. For example, people may overestimate the positive impact of a career promotion due to an under-appreciation of (hedonic) adaptation, put above-optimal variety in their planning for future consumption (see diversification bias), or underestimate the future selling price of an item by not taking into account the endowment effect. Consumers’ under-appreciation of habit formation (associated with higher consumption levels over time) may lead to projection bias in planning for the future, such as retirement savings. Projection bias also affects choices in other settings, such as medical decisions (Loewenstein, 2005), gym attendance (Acland & Levy, 2015), catalog orders (Conlin et al., 2007), as well as car and housing markets (Busse et al., 2012).
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References
Acland, D., & Levy, M. R. (2015). Naiveté, projection bias, and habit formation in gym attendance. Management Science, 61(1), 146-160.
Busse, M. R., Pope, D. G., Pope, J. C., & Silva-Risson, J. (2012). Projection bias in the housing and car markets. NBER Working Paper. Retrieved from https://www.nber.org/papers/w18212.
Conlin, M., O’Donoghue, T., & Vogelsang, T. J. (2007). Projection bias in catalog orders. American Economic Review, 97(4), 1217-1249.
Loewenstein, G. (2005). Projection bias in medical decision making. Medical Decision Making, 25(1), 96-105.
Loewenstein, G., O’Donoghue, T., & Rabin, M. (2003). Projection bias in predicting future utility. Quarterly Journal of Economics, 118(4), 1209-1248.