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…
One, buy gas when you need it, because it’s often hard to find a station; and, two: Always buy gas when you’re out of town, because it will invariably be cheaper. But the Freakonomics post got me to wondering about the relationship between fuel prices and distance in my own neighborhood. Were there deals to be had, or would driving to them eat up the savings in time, fuel consumption, added crash risk, etc.?
So I used the simple but nifty feature on my Dash navigation device that shows real-time gas prices in nearby stations (in case you’ve wondered how these are acquired, it comes from credit card transactions, updated on the hour, made at those stations). Interestingly, there was a 36 cents a gallon difference between the closest station and one an additional .3 miles away. So, on a 11 gallon fill-up, i could save nearly $4, with a minimal amount of driving. Doesn’t seem so irrational. The closest station is a bit of an outlier, though: It’s full serve only; the others are self. But the next three stations, all located near each other, were charging the same price. I’ve actually used that more expensive station before, for the odd reason that there’s hardly ever a line (perhaps precisely because it’s more expensive). But I’ll be curious to see what long-term effects will be on gas-station pricing transparency as more drivers have these devices; will prices flatten out, or will there be more volatility as individual stations advertise particular deals, luring drivers who wouldn’t have considered those stations before?
This entry was posted on Tuesday, June 24th, 2008 at 1:10 pm and is filed under Drivers, Etc.. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.