Consumer Willingness to Pay for Fuel Economy: A Randomized Control Trial Approach

Pervasive statistics, like the miles-per-gallon (MPG) rating for new cars and light trucks, seem easy to understand. Thanks to the U.S. EPA, consumers have been thinking in terms of MPG for decades. But research shows that humans are poor intuitive statisticians. Unless we slow down and think hard, we err, and MPG is one of the seemingly simple ideas that confounds us.

Consider this comparison: Guzzling Greg trades in his Chevy Suburban (12 MPG average) for a Cadillac Escalade (15 MPG), while Green Gary swaps out his Toyota Corolla (29 MPG) for a Toyota Prius (50 MPG). Who’s doing better by the environment?

The answer that pops into most people’s minds, Gary, is wrong. For every 100 miles of driving, Greg’s showboating shift to the Caddy saves 1.6 gallons of gasoline, while Gary’s pious move to the Prius saves only 1.4. In this case, the guzzler is really greener.

People make this mathematical mistake in test after test. The error is so common that economists have named it the MPG illusion. E2e investigators Hunt Allcott of New York University and Chris Knittel of Massachusetts Institute of Technology wonder whether it’s leading car buyers astray.

In a field experiment, Allcott and Knittel are testing how car buyers respond to mileage information when it’s presented differently. With the cooperation of dealerships owned by a major car manufacturer, they’ll show a randomly selected group of buyers information on the amount of gas, in gallons, saved by purchasing one vehicle instead of another and the amount of money that equates to. They’ll compare purchases by this group with those by a control group whose members see typical MPG information. The scholars are curious about how the change in presentation might affect buying behavior.

If the new information prompts people to opt for better mileage, that’ll suggest that buyers are being duped by the MPG illusion and overlooking the benefits of more efficient models in the same class. That matters because, if every buyer of a Nissan Titan pickup opted instead for a Chevy Silverado, tankers of oil might not be needed. That would put money in people’s pockets and keep carbon out of the atmosphere.

The MPG illusion may also be causing people to overvalue high-mileage models like the Prius. Granted, Prius purchasers probably aren’t swapping out SUVs for hybrids. But they may be ditching Corollas that already get decent mileage. If so, they may be saving less money and doing less for the environment than they might have guessed.