Energy Policy 35 (2007) 1213–1223

Car buyers and fuel economy?

Thomas S. Turrentine, Kenneth S. Kurani

Institute of Transportation Studies, University of California, One Shields Avenue, Davis CA 95616, USA

Available online 24 April 2006

Abstract

This research is designed to help researchers and policy makers ground their work in the reality of how US consumers are thinking and

behaving with respect to automotive fuel economy. Our data are from semi-structured interviews with 57 households across nine lifestyle

‘‘sectors.’’ We found no household that analyzed their fuel costs in a systematic way in their automobile or gasoline purchases. Almost

none of these households track gasoline costs over time or consider them explicitly in household budgets. These households may know

the cost of their last tank of gasoline and the unit price of gasoline on that day, but this accurate information is rapidly forgotten and

replaced by typical information. One effect of this lack of knowledge and information is that when consumers buy a vehicle, they do not

have the basic building blocks of knowledge assumed by the model of economically rational decision-making, and they make large errors

estimating gasoline costs and savings over time.

Moreover, we find that consumer value for fuel economy is not only about private cost savings. Fuel economy can be a symbolic value

as well, for example among drivers who view resource conservation or thrift as important values to communicate. Consumers also assign

non-monetary meaning to fuel prices, for example seeing rising prices as evidence of conspiracy. This research suggests that consumer

responses to fuel economy technology and changes in fuel prices are more complex than economic assumptions suggest.

The US Department of Energy and the Energy Foundation supported this research. The authors are solely responsible for the content

and conclusions presented.

r 2006 Elsevier Ltd. All rights reserved.

Keywords: Fuel economy; Fuel efficiency; Automobiles; Car buyers

1. Introduction

1.1. It’s a gut feeling

B., the male head of household, starts by saying,

‘‘$2000yI’m so wanting a spreadsheet right now.’’ He

laughs.

M., the female head of household, makes a joke about a

colleague writing the spreadsheet program. They both

laugh.

Then M. says, ‘‘$4000yit’s a gut feeling.’’

B., ‘‘I was trying to calculate it [in my head], but I didn’t

carry it through very far.’’

M., ‘‘We probably drive each car about 7000 or 6000

miles every year.’’

She then suggests they might save 1000 gallons per year

[for one car]; B. thinks this might be too much.

B. summarizes their initial responses, saying ‘‘$2000 to

$4000.’’

Then, in unison, M. and B. say, ‘‘Call it $3000.’’

M. and B. are responding to our inquiry about their

willingness to pay for a 1.5 times improvement in the fuel

economy of an SUV they have designed during their

interview—we have proposed to increase its fuel economy

from 11 to 17 miles per gallon (MPG). They both work as

financial service professionals. They appear to negotiate a

lot with each other, having done so throughout the

interview. Prompted by a desire to buy a vacation home,

they have been reviewing their expenses to determine how

much they can afford. They eventually offered a single

number as their answer—$3000—but their dialog illustrates they do not think about their vehicle purchases in

this way.

If a household in which both household heads are

financial professionals has trouble providing realistic

answer to a willingness to pay question in our extensive

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0301-4215/$ - see front matter r 2006 Elsevier Ltd. All rights reserved.

doi:10.1016/j.enpol.2006.03.005

Corresponding author. Tel.: +1 831 685 3635; fax: +1 530 752 6572.

E-mail address: tturrentine@sbcglobal.net (T.S. Turrentine).
interview, how valid could their response be to the same

question during a phone survey? How could we expect less

capable households to answer such a question? Does it

make any sense to even ask such questions?

1.2. Expert views on efficiency and fuel economy

There are at least three ideas behind most experts’

thinking about efficiency and fuel economy. The first is a

physical model: energy out of the crankshaft of an engine

can be apportioned to a variety of end-uses. This model is

summarized in Fig. 1. Increases in efficiency can be

apportioned to more power, moving a larger or less

aerodynamic vehicle, facilitating other on-board energy

use, and increasing fuel economy. Fuel economy is codified

as miles per gallon (under specified test conditions). This

physical model imposes a design envelope on choices

offered to consumers—the more energy apportioned to one

use, the less is available to others.

The second idea is basic economics: maximum profit

occurs when automakers offer consumers their most highly

valued distribution of the possible end-uses of the energy

produced by a vehicle’s engine. In practice and regardless

of any abstractions such as units of ‘‘utility’’ or ‘‘happiness,’’ the value of these end-uses is typically measured in

dollars, e.g., willingness-to-pay. In this view, the value of

fuel economy is measured in cents per mile (of fuel

savings).

Unfortunately, this idea has lead to the confusion of the

measure for the thing being measured, i.e., that the only

value to consumers of fuel economy is private monetary

savings. Saving money is related to household income and

budgets. As the price of gasoline goes up, consumers may,

according to their incomes, buy more fuel economical

vehicles or take other actions to stay within income and

credit limits.

A third idea is that consumers, for the most part, value

power, size, energy-consuming options and accessories

(and according to a widely cited anecdote, cup holders)

more than they do fuel economy, at least as long as fuel

costs are low and incomes are high.

How do these three ideas relate to how consumers

actually think about fuel economy? How do we reconcile

M. and B.’s story, and those of the 56 other households we

interviewed with these ‘‘expert’’ ideas? These households’

personal histories with automobiles will prove to be crucial.

1.3. A short history of fuel prices, fuel efficiency, and fuel

economy

For most of the past 90 years the real cost of gasoline

declined. Notable exceptions include the Great Depression,

the two ‘‘oil crises’’ of the 1970s and early 1980s, and recent

years. This history is summarized in Fig. 2. For most of our

households, their personal history with this trend dates

back no further than the 1960s. Even people as old as 40

had no direct consumer experience with prolonged rising

gasoline prices until the last few months of our study

period (in 2004).

Over this time manufacturers delivered roomier, stronger, and faster vehicles, as well as more amenities such as

automatic transmissions, all-wheel drive, air conditioning,

and entertainment systems. What was the effect on fuel

economy? Systematic data on fuel economy for the US fleet

of light-duty vehicles is available starting in the mid-1970s.

Since then, only during the oil crisis of the 1970s and early

1980s and following the deployment of corporate average

fuel economy (CAFE) standards did average fuel economy

increase. This trend is illustrated in the Fig. 3, which shows a

simple index of weight, power, and fuel economy plotted

against fuel economy, and traced over time.

Once oil shocks were over, CAFE standards ceased to

increase, and gasoline prices dropped, then automakers

quickly shifted back to increased power and size while fuel

economy improvements stopped. Fig. 3 understates this

ARTICLE IN PRESS

Torque, Horsepower 

Towing, Acceleration, 

Top Speed

Weight, Size, Shape 

Passenger and Cargo Capacity 

Safety (real or perceived)

Other Onboard Energy 

Four-wheel drive, HVAC, 

lighting, entertainment...

Fuel Economy 

Codified as MPG 

Longer range, 

lower per mile cost

Fuel Efficiency 

Useful energy out of the crankshaft to 

 unit energy input

Fig. 1. Physical model of fuel efficiency–fuel economy relationship.

0.00

1.00

2.00

3.00

1915 1925 1935 1945 1955 1965 1975 1985 1995

USD per gallon

Inflation-Adjusted 2002 Prices Current Prices

Fig. 2. Current and 2002 inflation-adjusted US prices for gasoline from

1918 to 2002. (American Petroleum Institute, 2002)

1214 T.S. Turrentine, K.S. Kurani / Energy Policy 35 (2007) 1213–1223
effect since it does not include increasing numbers of SUVs

and pickup trucks so large they are medium-duty, not lightduty, trucks. Automakers believed car owners wanted more

power and bigger vehicles, and exploited the lower CAFE

standard for light-duty trucks (and the absence of any

standard for medium-duty trucks) to use truck platforms to

provided consumers with minivans, SUVs and larger pickup trucks.

Fig. 3 depicts two distinct periods in recent automotive

history. Following the model of expert thinking presented

earlier, the first episode is read as an aberration caused by

temporary spikes in fuel price (and actual supply disruptions) and regulations, while the second marks a return to

‘‘true’’ consumer preferences. Our contentions are that (1)

neither period can be dismissed as unrepresentative of what

consumers want and (2) in all periods, consumers choose

from what is offered to them.

Individual consumers may experience these historical

periods of average improvements in power, size, and fuel

economy quite differently than illustrated in Fig. 3. The most

salient experience consumers bring to a new vehicle purchase

is their past experience with their own vehicles, not

improvements to vehicles in general. At any new vehicle

transaction, their most recent vehicles are typically 2–7 years

older than new vehicles being offered. Every time a

household shops for a new vehicle they may find most new

vehicles provide more power, size, and amenities—with

similar fuel economy—than their past vehicles. People may

experience new automobile purchases not so much as tradeoffs between new vehicle options, but mostly trading-up

compared to their past vehicles. This would be true especially

if the findings discussed in this paper regarding consumers

are right, that they do little calculated decision-making,

relying most on what information is immediately available.

1.4. Transportation energy research and the rational car

buyer

Transportation energy research extends the above model

of expert beliefs about consumers and fuel economy a few

steps further, applying more esoteric economic ideas about

consumer decisions such as payback periods and net

present value calculations. While many analysts admit that

something is wrong with rational choice, they still create

models and debate fuel economy policy as if drivers keep

records on vehicle and gasoline costs, estimate their

purchase costs and future ownership and operating costs,

and discount future cost and benefit streams, as from

higher fuel economy. Consumers are assumed to consider

the cost of gasoline and fuel economy both in their travel

and vehicle choices, and to consider such costs over time.

Studies based on this model have addressed, for

examples, household response to higher gasoline prices

(Espey and Nair, 2005; Kayser, 2000; Pitts et al., 1981;

Puller and Greening, 1999), aggregate economic impacts of

inaccurate EPA mileage estimates including impacts on

consumer surplus (Senauer et al., 1984), competing effects

such as gasoline cost savings versus safety (Yun, 2002), and

the range of implicit inter-temporal discount rates in

consumer decisions, (Calfee, 1985; Greene, 1983; Train,

1985; Verboven, 1999).

Based on this extended ideal model of consumer

response to fuel costs, automobile makers and regulators

debate how much more consumers would be willing to pay

for vehicles with improved fuel economy, and over what

period of time consumers will want their ‘‘investment’’ in

fuel economy returned. Automotive manufacturers oppose

higher CAFE standards, arguing that automobile buyers

want to get back their money on new fuel economy

technology sooner than the relative increases in vehicle

prices and fuel economy will allow. In one review of

national survey data, Steiner (2003) reported that on

average consumers said they would want back an ‘‘investment’’ in higher fuel economy in 2.9 years, despite the fact

they also said they expect to own vehicles, on average, for

more than 5 years.

What could be wrong with this model? Imagine for a

moment that at least some consumers do not value future

gasoline savings entirely as dollars saved, but also out of a

commitment to lower resource consumption, a belief in a

link between efficiency and greenhouse gas emissions, or

any of a variety of reasons other than private financial

savings on fuel costs.

Further, past interviews we have conducted with

automobile buyers lead us to think that the rational actor

model is not an accurate or useful view of how consumers

think about fuel economy and automotive fuel costs. A

multi-year project on markets for alternative fueled

vehicles in the 1990s left us with the impression that

automobile owners did not have any idea how much they

spend on fuel and often did not know the fuel economy of

their vehicles (Kurani et al., 1994; Turrentine et al., 1992).

Research on diesel vehicle buyers lead us to believe that

consumers use retail fuel prices to gauge their satisfaction

with their vehicle purchase, but did not record fuel costs

over time (Kurani and Sperling, 1988). CNG buyers we

studied in New Zealand did not calculate fuel costs, but

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0

2,000

4,000

6,000

8,000

10,000

10 15 20 25

New LDV EPA Adjusted 55/45 mpg

2005

1986

Fig. 3. Trends in new US LDV weight, power, and fuel economy, 1975 to

2005. (US Environmental Protection Agency, 2004)

T.S. Turrentine, K.S. Kurani / Energy Policy 35 (2007) 1213–1223 1215
similarly used relative natural gas and gasoline prices (a

difference subject to government policy) to gauge satisfaction with their vehicle conversion (Kurani, 1992).

But these results are more than 10 years old. Have

consumers changed? Have rising gasoline prices in the past

few years produced more rational consideration by

consumers?

1.5. Hybrid electric vehicles (HEVs) and the extended

model of the rational consumer

These expert ideas about fuel economy we outline also

frame a newer debate around the future sales of high fueleconomy HEVs. Strong sales to date of HEVs have

surprised many analysts and automakers. HEVs can cost

more to buy than conventional vehicles, and some

consumers wait months for delivery. On the other hand,

resale value of HEVs (as a percentage of purchase price) is

among the highest of any vehicle and sales of Toyota’s

Prius are reaching 100,000 units per year in the US.

Still not convinced, reports in the news and popular

press continue to question the ‘‘rationality’’ of HEV

buyers. Writing to consumers the Wall Street Journal

(White, 2005) and the automotive market research firm

Edmunds.com (2005) have recently published analyses of

private financial costs that indicate HEV buyers are not

being smart—if buyers of HEVs are trying to save money

through fuel cost savings.

A number of energy analysts are afraid that hybrid

technology, like fuel injection and many other technologies, will be put in service of increasing power, larger

vehicles, or conveniences and accessories, instead of

increased fuel economy. Carmakers have focused in the

last 2 years on applying hybrid technology to larger and

more powerful vehicle lines creating ‘‘performance HEVs’’

and hybrid SUVs. Are they signaling a belief that the

success of ‘‘economy HEVs’’ is limited and ephemeral?

2. Developing a wider view of consumer behavior with

respect to fuel economy

We do not argue with the belief that all things equal,

under conditions of declining real gasoline prices many

consumers have wanted more power and room in their

vehicles. But the value of fuel economy, relative to power

and room, is also not a simple matter of household

economics and gasoline prices. First, we hypothesize that

several factors confound calculated, rational decisionmaking around fuel economy, including the following:

1. Until recently, cars with good fuel economy (in the

USA) were most likely to be small, light, ‘‘cheap’’

vehicles, also known derisively as ‘‘econo-boxes.’’ Fuel

economy was part of this ‘‘economical’’ package, for

folks with fewer economic resources.

2. The automotive market offers many sizes, designs,

power-trains, brands, interior fabrics, technologies,

optional amenities, and colors. Fuel economy is one

variable in this complex market, a variable which is

easily forgotten when gas prices are low and falling.

3. Most vehicles still have crude fuel use instrumentation

designed primarily to provide notice of the need to

refuel, not to track fuel use or costs.

4. Given number 3, calculations and systematic record

keeping are not ‘‘normal’’ behavior. Those people who

do keep records, do so to track engine functioning.

5. Years of declining (real) gasoline prices and increasing

vehicle power, size, and energy consuming features

eroded the context for higher fuel economy of the 1970s

and early 1980s.

But there are new reasons for buyers to pay more

attention to fuel economy:

1. Rising and volatile gasoline prices over the past few

years.

2. New fuel economy instrumentation.

3. Obvious effects of global climate change due in part to

CO2 emissions from transportation.

4. Increased national dependence on imported oil, highlighted by another war in a key oil-producing region.

Even some radical conservatives have recently embraced

the idea of ‘‘oil independence’’ in the US and therefore

high automotive fuel economy as a strategic national

policy.

5. Very high fuel economy of early HEVs opens a new

direction in automotive symbols and values.

The combined effects of these two lists of variables create

a complex milieu for the value of fuel economy.

3. Fuel economy in the lives of 57 California households

We report here on the role of automotive fuel economy

in vehicle purchases and use decisions of 57 northern

California households. Our data was collected in

2003–2004 through a pre-interview survey and a 2-hour

household interview.

We do not challenge the engineering idea that allocates

energy to size, power, or fuel economy, but we do explore

consumer values, knowledge, and calculations for fuel use

and fuel economy decisions in much greater detail than

previous studies. We explore whether fuel economy is only

about saving money, and whether the extended model of

consumer rationality in transportation research, that sees

buyers as making calculated decisions about fuel costs

overtime, has any base in observed behavior.

We learn that almost none of our participants know or

track how much they spend on gasoline over time. Many

do not know the fuel economy (MPG) of their current

vehicle(s), much less what they spend cumulatively on

gasoline in a month or a year and therefore have no way of

knowing how much they might save with a more fuel

economical vehicle. Even the accountants, bankers, and

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financial analysts we interviewed do not keep track of their

gasoline costs other than to note the price of a gallon or

tank of gasoline the last time they went to the gas station—

the same as any of our households. Moreover, we have

some evidence that good fuel economy is sometimes viewed

as a moral value.

3.1. Household interviews

We interviewed these households over a 12-month

period. Because we review their entire history of automobile ownership, we discussed over 400 vehicles and

delved into over 125 specific vehicle transactions. With a

few exceptions, interviews were conducted with all relevant

household decision makers present. Most of these interviews were conducted at respondents’ homes; two were

conducted at their place of business and three in restaurants. Their home puts the participants at ease and seeing

the home gives researchers greater information about the

household.

3.2. Primary sampling attributes

Our goal was not to attempt a representative sample, but

to explore the range and variety of behaviors with regard

to fuel economy, with some structuring of the sample. We

identified nine different ‘‘sectors,’’ defined by economic,

lifestyle, and knowledge considerations, for which

we had simple hunches about their potential choices

and values.

We interviewed six households from each of these

illustrative sectors, plus three pilot interviews. The households live along a 100-mile stretch of US Interstate 80 in

northern California. In addition to families and couples,

there were single person households as well as some

students with roommates. Participating households had

recently purchased or were in the middle of a purchase of a

new or used car or truck. Households in our sample own

slightly more vehicles, are more likely to live in a small city

or a rural area, and are less likely to be retired than if the

sample had been drawn at random from the population of

California.

These are the ten groups that comprise the sample, with

and a brief description of our interest in them:

1. Pilot interviews: three households used to develop

interview methods.

2. College and graduate student’s nearing graduation or

recently graduated: limited income, well educated

about environmental issues, at a transition point in

their lives.

3. Off-road vehicle users: possibly more aware of fuel

economy because of their fuel-consuming hobby.

4. State resource agency employees: might know more

about environmental and energy issues in California.

5. Farmers and ranchers: business people who make

financial calculations and budgets over annual cycles.

6. Computer hardware and software engineers: probably

better connected with global technology developments,

high level of quantitative skill.

7. Military households: personal connection to the social

costs of the geo-politics of oil, for enlisted personnel

lower income creates more budget constraints.

8. Financial services sector: high level of financial quantitative skills they use professionally on a daily basis.

9. Outdoor recreation industry: lifestyle driven, aware of

environmental issues, whether or not they are sympathetic to environmental ‘‘causes.’’

10. HEV buyers: already buying fuel-efficient vehicles.

The interviews were conducted in four parts:

1. First, we listen carefully to households talk about past

vehicles and purchases, listening for past attention to

fuel economy. We are careful not to probe for fuel

economy, as we want to elicit past interest in fuel

economy, not prompt it during the interview. Here we

learn about the development of individual tastes and

major influences on vehicle choices such as family,

friends, and co-workers, episodes of financial upturns

and downturns, experience with past vehicles, etc.

2. Second, we ask about the most recent vehicle purchase

in much greater detail. As with the first step, the intent

in the second step is to listen for clues as to whether fuel

economy was a consideration: again, we do not probe

about fuel economy.

3. The third section of the interview was intended to insure

that we could listen to households talk about fuel

economy as one of several vehicle attributes. Further, we

wanted to establish as realistic as possible a context for

introducing a ‘‘1.5X’’ fuel economy vehicle in Part Four

of the interview.

We asked most households to design the next vehicle

they imagined themselves buying. In a few households,

we asked them to reconsider their recent vehicle

purchase rather than their next possible vehicle. Because

the HEV itself was the context for discussing fuel

economy with HEV buyers, we did not conduct this

exercise with them.

The exercise uses a priority evaluator (PE) table. After

establishing whether they want a truck- or car-based

vehicle, we offer a list of vehicle attributes: performance,

number of seats, cargo capacity, safety equipment/

rating, fuel economy, pollution rating, options

packages, and for trucks towing capacity and fourwheel drive. Each attribute is offered in three levels. For

example, the seating options for an SUV were four, six,

or eight seats, which cost one, two, or three points,

respectively. We constrain their vehicle design by

limiting their total points. Once they have completed

an initial design, we change their available points and

ask them to redesign the vehicle.

Within this exercise we require households to spend

more to get higher fuel economy—just as they are being

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T.S. Turrentine, K.S. Kurani / Energy Policy 35 (2007) 1213–1223 1217
asked to do now by so many researchers, but contrary to

their (later revealed) expectations that ‘‘economy’’ cars

cost less.

4. In the fourth part of the interview we let on that we are

most interested in fuel economy. Our goals here are to

observe households respond to questions about paying

more for higher fuel economy and payback periods, and

to discover whether households track the basic ‘‘building blocks’’ of rational consideration of fuel economy

such as annual fuel costs, MPG, and other data on

household travel and fuel use.

4. Findings

4.1. Parts 1 and 2: past and present vehicle purchases

In the absence of prompts from us, few households

mention fuel economy when discussing any past vehicle

purchases or use. Those who had considered fuel economy

did so at a time when they had modest income, when a

household member had a long commute, or during the oil

price shocks of the 1970s. Also, younger households may

recall their parents first buying ‘‘economy’’ cars in the

1970s.

Fuel economy also rarely surfaces when talking about

the most recent vehicle purchase. As a group, college

students were the most interested in fuel economy. For

them, money may be short and gasoline can be the entire

cost of operating a vehicle otherwise paid for by their

parents. Additionally we heard some mention of fuel

economy from enlisted military personnel and other less

affluent respondents.

Particularly in middle and upper middle-income households with children, their primary goal for at least one

household vehicle was often a vehicle large enough for

children, friends, dogs, vacation baggage, and large

shopping items. Many were interested also in four-wheel

and all-wheel drive for access to winter and off-highway

recreation activities (often whether or not these activities

were actually undertaken by the household). Families with

young children had a strong interest in safety.

4.2. Part 3: using the priority evaluator table to re-examine

the current purchase or design the next vehicle

In the PE exercise, we explicitly place fuel economy in a

competition with other vehicle attributes. (Recall we did

not use the PE exercise in households that had purchased a

HEV.) No household appeared to make a strong commitment to high fuel economy for a future vehicle (or a

revisited version of a recently purchased vehicle) based on

then current (circa 2002–2003) gasoline prices. Households

who did choose high or mid-level fuel economy for their

vehicles appeared to be doing so out of longer-term

commitments to environmental and social issues, or

because of high fuel costs at some point in their personal

or household histories. Still, in some high fuel use

households, fuel economy was surprisingly (to us) undervalued. Some people towing or traveling long-distances

seemed satisfied with low fuel economy ratings in the PE

table (mirroring what they are achieving in the real world)

and choose to spend points elsewhere, even when offered

more points. Some full-size truck buyers are interested in

lowering their fuel costs. They are likely to see alternatives,

such as diesel engines, as desirable.

4.3. Part 4: fuel efficiency and fuel economy

In the final section of the interview we finally reveal to

households our interest in fuel economy. Here we learn

how typical consumers think, or even if they think about it.

We start by asking whether fuel economy and fuel efficiency

mean the same thing or different things to them. It is clear

that the definitions of our lay respondents differ from those

of experts. The most common ‘‘off-the-top-of my-head’’

response is that the two terms mean the same thing. To

many people this meaning is rather abstract—‘‘It’s the

gasoline it takes to get around, to go all the places we go.’’

As some of them continue to talk, they convince themselves

that fuel economy is about saving money while fuel

efficiency is about saving gasoline.

When we ask our respondents to tell us what type of

automobile comes to mind when we say ‘‘good fuel

economy,’’ most think of the smallest, cheapest vehicles.

In contrast, ‘‘good fuel efficiency’’ tends to split the

respondents into those for whom there is no different

image and those who say fuel efficiency evokes images of

higher quality vehicles and HEVs.

4.3.1. Willingness to pay for higher fuel economy—do

households understand the question?

We then ask households how much they would be willing

to pay up front for an automobile with higher fuel

economy. The reference vehicle is the one they designed

in the PE exercise in Part Three. The fuel economy increase

we posit is usually a 1.5X increase. While we occasionally

choose a different multiplier than 1.5, we typically chose

this number for two reasons. First, it is the maximum

possible change in the PE table (and thus might be a

change the household actually made in the PE exercise).

Second, a 1.5X change is large enough on the one hand to

get the attention of people who for the most part are not

paying attention to fuel economy, but on the other is

within the realm of technical plausibility. Once they have

answered the question of how much they would pay, we

follow up by asking how they arrived at their answers. We

summarize their willingness-to-pay answers in Fig. 4.

In eight of the early interviews we did not ask this

question about willingness to pay directly, so no values

were solicited. In eight interviews in which we did ask the

question, the household could not or would not offer a

value. Ten other households offered a range, e.g., ‘‘$2000

to $4000’’ or ‘‘$5000 to $7000.’’ Sometimes this range

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1218 T.S. Turrentine, K.S. Kurani / Energy Policy 35 (2007) 1213–1223
conveyed obvious uncertainty; sometimes these ranges

represented disagreement between household members

who were unable to agree on an amount in the course of

the interview. Among the households who offered specific

dollar amounts (or answers in a range less than $1000),

values ranged between zero and $10,000. Even excluding

the eight households from whom we did not solicit a value,

half the households are unable or unwilling to offer a

numeric answer.

4.3.2. Basis for willingness to pay responses

How people arrived at their willingness-to-pay responses

is summarized in Fig. 5. Only two individuals offer

plausible willingness to pay answers arrived at through a

process that could be described as economically rational

(rather than through simple guessing). We judge the

plausibility of their answers based on their producing a

consistent set of answers to this question and later

questions about the time they are willing to wait to be

paid back, how much they drive, and what price they pay

for gasoline. Their rationality is limited in the sense that

neither based their answer on a net present value

calculation but rather on simple payback period, and both

implicitly assumed gasoline prices would not change (up or

down) appreciably. It is also apparent that these two have

not actually calculated a payback period for any of their

past motor vehicle purchases.

The most rational response we heard in all the interviews

was, ‘‘I don’t know.’’ A banker immediately recognized the

‘‘how much would you pay?’’ question. He sat up straight

and started to verbalize his calculation. As he described the

parameters, he realized he had no knowledge of one of

them—future gasoline prices. He slumped back in his chair

and motioned to his wife to offer her answer because he

had none.

At least 14 of our respondent households has one or

more member who is either a professional in the financial

services sector, likely had at least one collegiate level course

covering the topics of payback periods and net present

value calculations, or otherwise has high quantitative skills.

These include our financial services sector households, our

computer hardware/software households, and other households who happened to include a banker and a mathematics professor. These include the eight households in the

table who discuss the problem in terms of payback (but

make mistakes), the two people who offer plausible

payback discussions, and the one person who was asking

the right kinds of questions, but clearly had never

previously thought about fuel economy in this way.

It was clear that many our respondents were not telling

us how much they were willing to pay for 1.5 times higher

fuel economy, but rather were guessing what it would cost.

In nine households, our respondents admitted they were

guessing or did not really understand the question. Six

households arrived at a dollar value through a comparison

to other vehicle types, the cost of options packages, and

what they experienced as incremental price differences in

the market for things like more powerful engines. Some

(non-hybrid owners) were already familiar with what they

believed was the price premium for hybrids and used that

as their basis for answering.

In eight households, their answers followed from a

discussion of time—along the lines of a payback calculation—how long they expect to own the vehicle, balancing

gasoline cost savings with monthly payments, etc. That is,

they tried to ‘‘back into’’ a dollar amount by first

addressing the question of how long it might take to be

paid back.

A few households offered large round numbers, e.g.,

$5000, with little explanation. We call these ‘‘magic

numbers,’’ signals that within the context of an interview,

respondents are representing that higher fuel economy was

seen a good thing they would like to be seen to support.

4.3.3. How long will people wait for fuel cost savings to

payback a purchase premium?

Following the question about how much they would be

willing to pay for higher fuel economy, we asked whether

they expected this purchase price premium to be paid back

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$0 0>1K

1-2K

2-3K

3-4K

4-5K

5-6K

6-7K

7-8K

8-9K

9-10K

10K+

Unable or unwilling

to answer 

Broad range of 

answers offered 

Question not asked 

by us 

Hybrid buyers as a 

group viewed their 

purchase as more 

than fuel economy

Other

Fig. 4. Distribution of responses to willingness to pay for increased fuel

economy.

Guessing or don't 

understand the 

question.

Apparently plausible 

payback Payback discussion 

but make mistakes.

Ask right questions, 

but not repeating a 

prior practice

Comparison to other 

vehicle option pricing

Comparison to 

hybrids

Big “magic” number 

signifying importance

Balance higher 

vehicle payments 

with gas cost savings

Expected duration of 

ownership

Fig. 5. Basis for willingness to pay answers.

T.S. Turrentine, K.S. Kurani / Energy Policy 35 (2007) 1213–1223 1219
by fuel cost savings, and if so, how they arrived at their

estimate of how long they would be willing to wait. Fig. 6

summarizes their responses.

Almost two-thirds of all the households to whom we

posed this question would not or could not offer a payback

time; most of these said it was just not the way they

thought about it. The idea of a payback period for an

‘‘investment’’ in higher fuel economy is not part of the

vehicle purchase decision-making even in the most

financially skilled of our households. These respondents

tend to understand the question immediately, but as one

accountant responded, ‘‘Oh yea, payback calculations; I

would never have thought about it that way.’’

Six households were clearly guessing; some offered a

serial string of numbers in a questioning tone suggesting

they hoped we would stop them when they arrived at the

correct answer. Another group, either immediately or after

some discussion, settled on a time period that corresponded

to the term of their vehicle loan. We call this a ‘‘temporal

anchor,’’ a familiar time period offered in response to an

obviously unfamiliar question. The other temporal anchor

offered was the time they expected to own the vehicle.

Those who gave the shortest (non-zero) payback periods,

i.e., 1–3 years, were being optimistic rather than impatient.

When we asked about how they arrived at their answer to

the question of how long they would be willing to wait, it

became clear these people were over-estimating how much

they thought they would save on gasoline. The two

households who said they would not be willing to wait at

all explained that they believed their spending was so

constrained by cash flow they could not pay anything

upfront. The three households who offered the longest

payback periods based their replies on the belief they

would own their vehicles for long periods of time; in effect

saying, ‘‘I want any purchase price premium to be paid

back while I still own the vehicle, but I expect that to be a

long time.’’

The most common mistake respondents made was to

overestimate fuel cost savings, and therefore to underestimate the time for fuel savings to payback upfront costs.

Inflated estimates of fuel savings are usually the result of

overestimating how much fuel they consume. (We discuss

the quality of peoples’ knowledge of their fuel expenditures

in the next section.) Some households made the mistake of

assuming they save their entire fuel cost for a year instead

of just the savings from a 50 percent improvement in fuel

economy. Even households who offered large willingness to

pay values often think they can get their ‘‘investment’’ back

in a couple of years.

4.4. The building blocks of rational decisions

It is clear few households understand the financial

calculations that lie behind questions about ‘‘an investment

in fuel economy’’ and payback periods, and that even those

few do not apply such knowledge to their household

vehicle purchase and use. Do any households have the

basic building blocks of rational decision-making—the

perfect, or really good, information consumers are assumed

to have about their own costs and options for improved

fuel economy?

The answer is, ‘‘no.’’ Nineteen households admitted they

could not tell us the fuel economy rating for one or more of

their vehicles. In most households one person could offer

the MPG rating of their vehicle while others could not.

Even the self-identified knowledgeable person knew their

vehicles’ MPG with varying degrees of certainty. Only

owners of HEVs that have obvious, precise, and visible fuel

economy instrumentation consistently offered confident

estimates of their MPG. The fuel economy values offered

by households came from a variety of sources. Some

measured MPG from tank-to-tank of fuel. Some recalled

the estimate provided on the window sticker when the

vehicle was purchased. A few recalled reading the owner’s

manual. All respondents who track their fuel economy

from tank-to-tank do so as a diagnostic tool to assess

vehicle performance over time, not to track fuel costs or

economy per se.

4.4.1. Knowledge of fuel expenditures

We asked households how they best understand their

fuel expenditures over time, and prompted them with,

‘‘annually, monthly, or weekly?’’ Most chuckled at the idea

of knowing their annual fuel cost, it is an unknown number

for all but two households who track vehicle mileage and

expenditures for business purposes. The time periods for

respondents understanding their gasoline expenditures are

summarized in Fig. 7.

The largest number of households (27), either said they

had no idea of their gasoline expenditures over any period

of time (14) or knew only what they spent per tank of

gasoline (13). Many of these households tried to develop a

‘‘monthly’’ estimate by summing their recollection of

typical gasoline purchases—starting with their estimate of

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0 years

1 to 2

2 to 3

3 to 4

4 to 5

5 to 6

6 to 7

7 to 8

8 to 9

9 to 10

More than 10

No time solicited

No time offered by 

respondent

Time offered, but 

guessing

Duration of vehicle 

loan

Not able to answer, 

don’t understand

Not able to answer, 

does understand 

(forecaster)

Balance gasoline 

savings with monthly

payment

Other

Fig. 6. Willingness to wait to be paid back by higher fuel economy.

1220 T.S. Turrentine, K.S. Kurani / Energy Policy 35 (2007) 1213–1223
the cost of a tank of gas and multiplying that by their guess

as to how many times they refuel per month.

As with the issue of whether people conduct payback or

net present value calculations though, the simple fact that

people would offer a guess as to their monthly gasoline

costs is not the same as their actually measuring gasoline

use and expenditures on an ongoing basis. These households were constructing their estimate of fuel costs over

time for the first time in their interview.

We conclude that in general our respondents do not

track or sum their automotive fuel costs over time. Overall,

the most common way people knew their gasoline costs

was by the cost of a tank of gas, and this usually from their

most recent refueling event. Thirty-one households could

recall with some confidence how much they paid for the

last tank of gasoline. But, it takes only a few days for the

specific data to appear to be forgotten, and a ‘‘typical’’

amount substituted. A few households do have credit cards

dedicated to their gasoline purchases, and they seem to

have a better handle on monthly costs. Still, many of these

households buy gasoline for several vehicles on the same

card, and thus do not know how much they spend on

gasoline for any one of their vehicles. Of the three

households who offered estimates of their annual gasoline

costs, one was clearly guessing and two were undertaking

broad reviews of annual household expenses at the time of

their interviews.

4.5. HEV owner interviews

We interviewed HEV buyers because they appeared to

have paid for a high-technology approach to better fuel

economy. We wanted to explore how they made this

decision. The interview protocol for these households was

different; we did not prospect the purchase of a vehicle with

better fuel economy using a priority evaluator table;

instead we spoke directly about their real decision.

Additionally we spoke with hybrid buyers about the wider

meanings of their purchase, as well as what it was like to

own a vehicle with this new technology

None of the eight hybrid owners in our study tracked

fuel economy over time. Nor were they any more likely

than the other 49 households to know their annual fuel

costs. We emphasize that no hybrid owner we interviewed

was solely or even importantly interested in saving money

on gasoline. They did know a lot more about the vehicle

and the environmental issues it addresses than they did

about their own gasoline costs.

Buyers of HEVs talked about making a commitment. In

addition to any financial commitment, buyers of Toyota’s

Prius generally had to wait several months for delivery of

the vehicle. For several hybrid buyers the idea of

commitment included setting an example, being a pioneer,

talking to other people about their car. Several had shifted

from a larger vehicle to the smaller hybrid. One hybrid

buyer also started biking and walking more. For one

household, their Civic Hybrid was part of a larger project

to reduce their environmental impacts. This household had

moved to a ‘‘hobby’’ farm in a remote rural area, which

given their job locations and other interests resulted in lots

of driving. They are hoping to buy a second hybrid.

Among this group of HEV buyers, the high fuel

economy of their hybrid signified some other important

value. Some HEV buyers were attracted by the new

technology; others by the low emissions of criteria

pollutants; and others still by a sense of ‘‘living lighter’’—getting around while consuming fewer resources.

HEV owners did not in general perceive a specific price

difference that they paid for their HEV. One respondent

said, ‘‘I looked at the whole package, and judged it was

worth the price.’’ Further, assessing what is the relevant

difference in price and fuel economy (as a determinant of

private fuel cost savings) depends on detailed knowledge of

the households’ vehicle holdings and transactions. Many

HEV buyers crossed vehicle classes in order to buy hybrids

available at the time of this research. One traded in his

Jaguar XJ6, another traded her compact pickup truck, and

another bought a Prius rather than a compact SUV.

5. Discussion

Based on what we heard in these interviews, many

findings from past and ongoing energy research and

analysis that report consumer willingness to pay and

payback periods for new fuel economy technology in

automobiles seem unrealistic. We expect that most

participants in past survey research were responding for

the first time to novel questions, not recalling past or

probable future behavior. In short, the consumers we

spoke to do not think about fuel economy in the same way

as experts, nor in the way experts assume consumers do.

The problems posed by this mismatch between experts’

questions and laypersons’ reality are not avoided by

inferences based on a rational analytic interpretation of

parameters in models correlating vehicle and fuel prices

and sales.

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We didn’t ask

Household didn’t 

know and wouldn’t 

even guess gasoline 

expenditures

Per Week

Per Month

Per Year

Calculate over 

specific trips

Calculate from tank 

to tank 

Fig. 7. Basis for households’ responding to questions about their gasoline

expenditures.

T.S. Turrentine, K.S. Kurani / Energy Policy 35 (2007) 1213–1223 1221
We consistently watched consumers overestimate their

gasoline cost, express willingness to pay values out of line

with an objective view of their potential savings and past

behavior, and then offer payback periods that do not

reflect their estimate of their expenses. For these people,

pointing out their true annual fuel costs and the difference

in their costs made possible by higher fuel economy might

not be the best strategy to foster purchases of more fuel

economical vehicles—if we assume higher fuel economy or

fuel efficiency have only private monetary value to

economically rational consumers.

Based in part on consumers more positive images of the

term fuel efficiency, as compared to fuel economy, it might

be strategic for those interested in promoting good fuel

economy to shift their terminology and focus to good fuel

efficiency—so long as higher efficiency is put to the service

of lower fuel consumption.

We heard from households who were attracted by nonincremental, non-marginal improvements in fuel economy

and fuel efficiency such as those offered by hybrids and as

offered by us in the course of their interview. The actual

buyers of HEVs appear inspired by large changes in fuel

economy beyond even what those changes might save them

in the cost of gasoline.

If households do not have access to the basic building

blocks of information regarding their fuel use and costs, if

they demonstrate a lack of understanding or express no

experience with algorithmically correct rational calculations, and if some demonstrate they understand such

calculations but have never applied this understanding to

their household vehicle purchase, then what are consumers

doing?

Much recent psychological and sociological theorizing

focuses on the use of heuristics, or cognitive shortcuts.

Reich (2000), reviewing the work of German social theorist

Gerd Gigerenzer, argues that ‘‘yrules for decision and

action may well be grounded on simplifying and biased

assumptions and lead to incoherent results—in short, these

rules may be heuristical algorithms instead of determinable

algorithmsy.’’ Kahneman (2002) argues that such shortcuts are the normal way of making decisions (even among

experts) and that calculated rationality occurs only as a

deliberate override to such heuristic—or in his terms,

intuitive—practices. Of particular importance is that

certain types of quick decision tools and information are

more accessible, and therefore far more commonly used in

making decisions.

It may be that such heuristics are used when we ask

participants to answer questions like, ‘‘How much would

you pay for higher fuel economy,’’ or ‘‘What is an

acceptable payback period?’’ They may be answering with

an accessible rather than an accurate number, just as we

heard some households respond with answers that matched

their vehicle loan period or expected duration of ownership.

However, fuel economy may be more complicated than a

simple set of heuristics, which offer consumers a few quick

ways of making decisions in situations of limited information or high complexity. Fuel economy is becoming a

public issue, a topic of conversation, advertising, news

stories, and display. Automotive advertisements now

feature fuel economy ratings and tout the number of

vehicles a manufacturer builds that achieve high fuel

economy. The prices of a gallon of gasoline and of a

barrel of oil are stories on the evening news, in the morning

paper, and on automobile-related web sites.

Further, motor vehicles are assigned symbolic meanings.

As we find in our interviews, many households express

considerable anger towards owners of large SUVs, and are

willing and even eager to talk about it. Even owners of

small and mid-sized SUVs express anger at drivers of fullsize SUVs. Oil companies are also targets. Evidence from

this study suggests that a common consumer response to

rising gasoline prices is not to change travel or buy more

fuel economical vehicles, but simply to get angry with oil

companies. Fuel economy is conflated with many of these

symbolic meanings and has become part of conversations

about larger issues than household budgets.

We offer two hypotheses from this set of interviews.

1. Over the past several decades of declining real gasoline

prices and rising personal incomes, consumers engaged

in a limited economic rationality, possibly using

simplifying heuristics in the place of algorithmically

correct evaluations. Abetted by limited fuel use and cost

instrumentation, consumers give little attention to fuel

economy. If gasoline prices increase enough, consumers

will develop more calculating, economically rational

decision-making regarding fuel economy.

2. Automobiles are repositories of many high value meanings, some which have important but non-quantifiable/

non-monetized value. Because of these meanings, few

automobile buyers paid much attention to the small

financial differences provided by the historically available

differences in fuel economy of otherwise similar vehicles.

Even if gasoline prices rise, buyers may respond to shifts

in these other meanings rather than respond solely to

shifts in fuel costs in economically rational ways.

The first hypothesis simply implies that gasoline has been

too cheap for the past few decades for it to be ‘‘sensible’’

for consumers to be ‘‘rational.’’ The second states that the

value of fuel economy is more than differences in fuel costs,

but includes other symbols, meanings, and values, and that

those are unlikely to be processed in an economically

rational algorithm under any conditions.

Contrary to the first hypothesis though, we found that

automobile buyers do not have the basic building blocks to

make calculated decisions about better fuel economy, and

most do not keep track of fuel cost over any significant

time period, be that the life of the vehicle, their duration of

ownership, annually or even monthly. Refueling does not

always happen on a regular schedule, so even in the context

of our interviews, households can only make rough

estimates of costs over time. It is clear that even our most

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1222 T.S. Turrentine, K.S. Kurani / Energy Policy 35 (2007) 1213–1223
financially skilled buyers have not purchased their cars and

trucks based on the application of payback or net present

value analyses.

Behavioral vestiges of the last dislocation in gasoline

prices and supplies during the 1970s and early 1980s were

heard in the interviews, faint echoes of remembered shifts

toward more economical vehicles. Under these conditions,

policy makers, automobile manufacturers, and consumers

pushed the vehicle design envelope in the direction of

higher fuel economy. Claims—based on the past twenty

years of pushing the design envelope toward greater power,

size, and energy-consuming options and accessories—that

consumers do not value fuel economy ignore context,

assuming that ‘‘what consumers want’’ is invariant.

Even in a sample constructed such as the one in this

study, if economic rationality is pervasive in the population, we should have found some one who articulated their

automotive purchase and use decisions in a manner

consistent with the assumptions of that model. We did

not. Therefore, we cannot support the continued assumption that economic rationality is the sole sufficient

behavioral model for policymaking and policy analysis of

automotive purchases and gasoline consumption. We have

presented initial evidence to contradict the first hypothesis

and in support of the second. Still, choosing between them

would require further study.

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