Model-Based Evaluation of Cooling-off Policies

This paper studies the ex-ante prediction and ex-post evaluation of the effects of cooling-off policies when consumers may exhibit a behavioral projection bias. We first set up a theoretical model and show that neither the adoption of a mandatory cooling-off period nor a return policy is generically superior or consumer welfare improving. Relating the model’s pre- and post-policy equilibrium combinations to their empirical analogues, we then show how market-level data can help to evaluate policies using baseline statistics and to sometimes even conclude whether consumers exhibit a projection bias. We further discuss the applicability to other policies and nonstandard preferences and the implications for policy design.