Abstract
This paper tests for the presence of projection bias in the context of an irreversible household investment decision. Households have to forecast their future flow of utility when making inter-temporal purchase decisions, which might be affected by psychological factors. I study whether short-lived weather shocks have an impact on household investment in solar adoption, where sunshine can be directly linked to financial utility. Focusing on Germany, the largest market for residential solar worldwide, I find that a standard deviation outlier in monthly sunshine hours leads on average to one additional installation. Other weather shocks such as temperature, rain, and snow do not have any significant impact on technology uptake. The findings are in line with the behavioral economic concept of projection bias (Loewenstein, O’Donoghue, and Rabin (2003)).
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