Fuelonomics
In a recent post over at Freakonomics titled “What Exactly Concerns Us About Gas Prices?”, I was struck by this note, from the comments: “The price for gas is displayed loudly at gas stations (unlike any other product or utility we buy - quick, how much do you pay per kW-h for electricity?). This extreme price advertising leads us to view the price of gasoline differently than prices for other goods: we track pennies of difference between gasoline vendors and will cross town to save a nickel per gallon. For what other product would we drive across town to take advantage of what equates to a “1% off sale”?
I’m always intrigued by moments of irrationality in traffic. We risk our lives by driving at higher speeds to “save time,” instead of simply wasting less time during other activities with less direct bearing on our life and limbs (e.g., standing in front of the supermarket freezer choosing ice cream). But the commenter’s reference to driving “across town” reminded me of the classic discussion of “mental accounting” by the behavioral economist Richard Thaler. Using surveys that asked whether people would “drive across town” to save $5 on a particular item, he found that people were more likely to do so when the cost of the item was $15, rather than $125 — even though the absolute savings was exactly the same.
As a New Yorker, my rules on gas purchasing are pretty simple… (more…)
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