Predictably Irrational » Blog Archive » Which car to replace? A wrong decision?


	Which car to replace? A wrong decision? 22nd June 2008, 06:15 am Consider the following scenario: You have two cars, one is a very inefficient van (giving you on average 5 MPG) and one is a relatively efficient sedan (giving you on average 20 MPG). Due to your work and obligations you have to drive each of them the same distance every month. You need both types of cars and for now you can replace only one of them. What should you replace? Option 1: Replace the 5 MPG van with a 10 MPG van Option 2 Replace the 20 MPG sedan with a 50 MPG sedan What would you select? As a new paper by Rick Larrick and Jack Soll shows many people select option 2, where in fact option 1 would be better for them (also see this story about the research). Does this sound odd? Lets look at it more carefully: Lets assume that people drive 100 miles a month. This means that the 5 MPG van uses 20 gallons a month while the 20 MPG sedan uses 5 gallons a month. Now what if we change them? If we change the van we would change from using 20 gallons a month to using 10 gallons a month (saving 10 gallons a month). If we change the sedan we would change from using 5 gallons a month to using 2 gallons a month (saving 3 gallons a month). Now it is clear that changing the van is a much better move. Why is this not obvious to people from the MPG information? It is because comparing MPG don’t directly reflect the cost differences. In Europe they present efficiency measures I liters per 100 kilometers, and this seems to be a much more intuitive measure. One advice is clear – if you think about changing a car, change first the least efficient car.


	18 Comments JasonS That assumes both cars are driven the same distance monthly and both cars are paid off. If one person drives the van 50 miles/month and the spouse drives the sedan 200 miles/month, then it makes more sense to replace the sedan. Plus, if the couple is upside down on the loan for either car, then that has to be taken into consideration as well. 22 June 2008, 7:24 am eric This is exactly why I have thought efficiency should be quted as gallons (or some volumetric unit) per mile instead of MPG. It’s refreshing to hear that they do this in Europe. There is, however, one caveat. Allowing the price of gas to go up to $20/gallon, or taxing it so that it is that high, would result in people driving less, and buying more efficient vehicles. Whether or not it is wise, public policy seems to be moving toward encouraging people to drive efficient vehicles without creating $20/gallon gasoline. As time goes by and obvious gas guzzlers are eliminated, the fact that efficiency is quoted in MPG could continue to encourage people to buy hibrids and other ultra efficient vehicles, even if it doesn’t make economic sense for them, thus acheiving the public policy goal. A good compromise might be to allow high efficiency vehicles to advertise their efficiency in MPG, but force all window stickers to include a GPM rating, so that different cars can be compared easily. 22 June 2008, 2:29 pm Peter W Option 3: Re-assess your obligations. 22 June 2008, 3:59 pm Doctor Jay I guess this is why a hybrid SUV makes lots of sense, even though it seems kind of a joke. I note that at 120 miles per month, even taking the SUV from 5mpg to 6mpg results in more fuel savings than taking the other vehicle from 20mpg to 40mpg. Truly, I think we learned to do math for just this reason. We couldn’t figure this stuff out any other way. 23 June 2008, 10:40 am Nirav Kanodra Haha, makes complete sense, anyways human brain usually thinks in linear terms, hence reciprocals or compounding isnt intuitively estimated by most of us 24 June 2008, 8:35 am Mark Buckaway Interesting question. However, as JasonS alluded, the question forgets about the total cost of ownership and limits the question to nothing other than fuel consumption. If one considers insurance, maintainance, loan interest, cost of the new car, it may be cheaper to keep the older cars over the purchasing a new one….even through more fuel would be consumed. Arguably, environmentalism is not about rationality: save the planet at all costs (intended or unintended). One need only see the rise on the price of corn to know about this issue. 26 June 2008, 1:59 pm Half Sigma Is this a case of people being IRRATIONAL, or a case of people being MATHEMATICALLY ILLITERATE? I suspect the latter. To the person who can only do basic adding and subtracting, the second options saves 30 mpg compared to 5 mpg for the first option. 28 June 2008, 1:59 pm mike Wow this was such a great post the great Seth Godin decided to pawn it off as his own! http://sethgodin.typepad.com/seths_blog/2008/06/the-magic-of-lo.html 1 July 2008, 11:20 am AAB Assuming you travel x miles each on the van and the sedan then you use x/5 + x/20 = x/4 gallons of gas if you chose option 1 you will use x/10 + x/20 = 3x/20 = 0.15x gallons if you chose option 2 you will use x/5 + x/50 = 11x/50 = 0.22x gallons 0.15x 0 so I choose option 1 10 July 2008, 2:35 am Blondie Pffttt… It is really so obvious. You replace the one that is the colour you like the least. Why do people have to complicate things so much? 16 July 2008, 9:07 am The Planet a ‘relatively efficient’ sedan giving 20 mpg ?? I really am beginning to despair, when even a relatively average japanese or european car could do 40 mpg… a diesel engine could easily achieve 60 mpg.. When are you guys going to wake up and smell the coffee ?? http://www.telegraph.co.uk/motoring/main.jhtml?xml=/motoring/2008/06/14/mfcheaperdriving114.xml 25 July 2008, 7:01 pm Diktionarynet Автор явно умеет привлечь посетителей на сайт). Пишет очень понятно и интересно. Огромное человеческое спасибо 16 September 2009, 4:14 pm BananasParks Не могу сейчас принять участие в дискуссии – нет свободного времени. Буду свободен – обязательно напишу что я думаю. 16 September 2009, 6:21 pm Nicetravel Для более подробного и внимательного изучения добавил в избранное. Буду изучать 19 September 2009, 8:25 am ITelekom Это очень ценное мнение 22 September 2009, 2:26 am Antiraiders Прочитал все комментарии, но так и не понял почему так сильно расходятся мнения, помоему и так всё понятно 25 September 2009, 4:21 pm Kitaecs Могу сказать, что не зря мне знакомые посоветовали этот блог, доволен полностью. 21 October 2009, 9:45 am Keymaster Супер, благодарю, очень полеpная инфа! 7 November 2009, 5:26 am Leave a comment Name (required) E-Mail (will not be published) (required) Website Comment (requried)