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How gas prices (and impulsiveness) affect consumer car choice

MIT professor and energy economist Christopher Knittel weighs in on whether or not we're shortsighted in our car purchases

Dan Weissman, Marketplace    ·    November 4, 2014    ·    Marketplace

Falling gas prices have given American consumers some extra pocket money. So, how are we celebrating? According to one economist, we tend to blow some of it at Starbucks— which – bonus! – means more jobs for baristas.

And it appears that some of us run out and buy trucks and SUVs. New automobile sales reports are out, and Chrysler’s Jeep line and Ram pickup trucks had a great month.

We wondered: Doesn’t that seem like kind of a big spend for an impulse buy? Do people really just decide to go for it when gas prices drop? 

“Yeah, that’s definitely the case,” says Jessica Caldwell, an analyst with the car-shopping site Edmunds.com.  She thinks some of today’s SUV buyers may be people who ditched their gas guzzlers in 2008, when the economy tanked and gas prices spiked. 

[…]

So – […] are we making dumb financial decisions?

Remember, this could work in either direction. When gas prices go up, people don’t just buy more fuel-efficient cars, they pay more for them. MIT energy economist Christopher Knittel wondered: Are they overpaying

Answer: Nope. “What we find is that consumers more or less get it right,” he says.

Even without a spreadsheet, the average consumer didn’t pay so much for a Prius that the price increase was more than they could expect to save on gas. 

So: Yes, we’re a little impulsive. But we’re not dumb.

Read the full article at Marketplace.org.


Policy & EconomicsTransportation

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