Posner Gets Behavioral
By Bryan Caplan
Here‘s something you wouldn’t expect Richard Posner to write:
I wonder, too, whether the recent decline in U.S. gasoline consumption doesn’t represent to some degree an irrational panic reaction. To take a huge loss on the sale of your SUV in a market that is depressed because so many other people are doing the same thing at the same time is unlikely to be justified by the gains from the improved gas mileage of the car you buy with the modest proceeds of the sale. Likewise, driving a substantial distance to save a few cents a gallon on the gas you buy is unlikely to be worthwhile. A recent article suggests that people fixate on the price of gasoline because unlike most regularly purchased items, such as food, gasoline is purchased separately from other items so that its price is not buried in a bill for multiple items.
Anecdotally, I think he’s on to something. I too have noticed people searching harder for bargain gas. But as search theory explains, the whole reason to search for lower gas prices is the variance of price. If gas sells for exactly $10.00 in every station, there’s no point searching. And while gas prices have increased, I haven’t noticed any increase in the variance of prices. So there’s no reason to search more today than five years ago.
Is my impression of a stable variance of gas prices incorrect? Am I mistaken to think that people are really doing more bargain hunting than they used to? Or do we need to give behavioral search theory its due?