Suppose you’re running a small organization with five motor vehicles used by your staff and you want to replace them with more fuel-efficient versions, both to save money and reduce your organization’s carbon footprint. Each vehicle travels 10,000 miles a year. Based on your budget and the requirements for each vehicle, you can do the following, but you can only afford to replace one car every six months:
- Replace a 16-MPG car with a 20-MPG car
- Replace a 22-MPG car with a 24-MPG car
- Replace a 18-MPG car with a 28-MPG car
- Replace a 34-MPG car with a 50-MPG car
- Replace a 42-MPG car with a 48-MPG car
What order should you replace them in in order to save the most money and make the fastest reduction in your carbon footprint? Let’s make this a poll:
Richard Larrick and Jack Soll asked their students a similar question. They wanted to know if miles-per-gallon was the best way to help the students calculate an improvement in efficiency. While it’s obvious that each car will improve mileage, it’s not as clear exactly how much money, gas, and carbon emissions will be saved. That’s because the relationship between a car’s fuel efficiency measured in miles-per-gallon and its fuel consumption isn’t linear:
As miles per gallon increases, the number of gallons of gas used to travel a specific distance decreases by smaller and smaller increments. If you start with a vehicle that gets 10 MPG, to save 200 gallons a year you’d only have to increase to a 12.5 MPG car. But if your car gets 25 MPG, then to save 200 gallons you’d need to increase to 50 MPG.
So how did the students respond?
They responded exactly as you’d expect if there was a linear relationship between miles-per-gallon and actual savings. Sixty percent of the 77 respondents said the cars should be purchased in 4, 3, 5, 1, 2 order: the cars with the biggest miles-per-gallon increase should be replaced first. In fact, the most efficient replacement order is 3, 1, 4, 2, 5. Only 1 respondent got it right.
So do people do better when they’re given a better way of understanding the savings? Larrick and Soll suggest that reporting fuel efficiency in terms of gallons per mile (or per hundred miles, so you’re not working with fractions) makes it easier for people to make comparisons between cars. If a car gets 15 MPG, that’s 6.67 gallons per hundred miles (GPM). A 19 MPG car uses 5.26 GPM. A 34 MPG car uses 2.94 GPM, and a 44 MPG car uses 2.27 GPM. So improving your mileage from 15 to 19 MPG saves 1.41 gallons every 100 miles (this is calculated by simple subtraction: 6.67 – 5.26 GPM). Improving from 34 to 44 MPG only saves 0.67 gallons: less than half as much.
In an online survey, the researchers asked respondents whether it would be better to replace a 15 MPG car with a 19 MPG version or a 34 MPG car with a 44 MPG version. As you might expect, respondents overwhelmingly (and incorrectly) chose the second option. But in a separate survey, when asked whether to replace a 6.67 GPM car with a 5.26 GPM car or a 2.94 GPM car with a 2.27 GPM car, respondents correctly chose the first option.
Larrick and Soll say this is clear evidence that cars should be rated in GPM rather than MPG. They say that people would be more likely to replace truly inefficient cars (like those which only get, say 12 MPG). While people might think it’s not worth the trouble to upgrade from a 12 MPG car to an 18 MPG car, the actual savings would be over 277 gallons a year (assuming 10,000 miles per year), versus just 133 gallons a year saved by improving from 30 MPG to 50 MPG.
Larrick, R., & Soll, J. (2008). ECONOMICS: The MPG Illusion Science, 320 (5883), 1593-1594 DOI: 10.1126/science.1154983