Plausibly Exogenous [1628] - Consumer Myopia (07/18/2024)

LHS Variable
Vehicle transaction price

RHS Variable
Change in discounted lifetime fuel cost due to the restatement

Source of Exogenous Variation
In 2012, after an audit by the U.S. Environmental Protection Agency (EPA), the two major automakers Hyundai and Kia acknowledged that they had overstated the fuel economy for 13 important vehicle models from the 2011-2013 model years by one to six miles-per-gallon. This overstatement—by far the largest in history—affected over 1.6 million vehicles sold, including several popular models such as the Hyundai Elantra and Kia Rio. Hyundai and Kia blamed a “procedural error” in the mileage testing and had to abruptly change the official fuel-economy ratings for these vehicles. Following the restatement, the automakers agreed to compensate buyers who had already purchased vehicles with misstated ratings, while new car buyers after the restatement did not receive compensation.

- Gillingham, Houde, and van Benthem (2021), “Consumer myopia in vehicle purchases: evidence from a natural experiment”