TOPICS > Nation

Consumers Face Tough Choices as Gas Prices Rise

May 23, 2008 at 6:20 PM EST
Loading the player...
As the summer travel season begins this Memorial Day weekend, American motorists are shifting their consumption patterns as they adjust to higher prices at the gas pump. Experts examine how consumers are handling the higher fuel prices.
LISTEN SEE PODCASTS

TRANSCRIPT

JEFFREY BROWN: It’s not enough you’re paying around four dollars a gallon for gas, but then you’re asked how you feel about it by some guy with a camera.

DRIVER: This is getting really crazy how it’s rising to — it used to be a dollar. Now it’s four dollars.

DRIVER: It’s breaking me, for real.

JEFFREY BROWN: Record high gas prices this Memorial Day weekend are pounding consumers at the pump. But how much are they impacting where, what and how much people drive?

The AAA auto group says Americans are not giving up their holiday travel plans just yet: 31.5 million motorists are expected to hit the highway this weekend, just a 1 percent drop from last year.

DRIVER: There’s nothing I can do about it, so I just kind of grin and bear it, I guess.

JEFFREY BROWN: But the rising prices are driving some commuters to find short-term solutions. There is, in fact, some evidence that more are turning to public transportation.

In a number of cities, like Washington, D.C., commuters are increasingly leaving their cars in the driveway.

TRAIN RIDER: So me and my wife have premium-driven cars that we just can’t afford to drive. You’ve got to take the train.

STATION EMPLOYEE: Our ridership has definitely increased. I can tell by the customers, citizens that come in and out of the station here. It has increased.

JEFFREY BROWN: Some people are also now turning to smaller, more fuel-efficient vehicles, even the very small Smart car, a fraction of the size of a typical SUV, with triple the fuel economy.

Sales of trucks and SUVs, once a major profit center for automakers, have declined to their lowest levels in a decade. And yesterday, Ford Motor Company said it would scale back production of these vehicles.

DRIVER: This is an explorer, an SUV, which I’m going to trade it soon for a smaller car.

DRIVER: I’d just like to get a more fuel-efficient car.

JEFFREY BROWN: But not everyone is ready to downsize…

DRIVER: Driving a car like this, I’m not going to park it forever. I don’t drive as much, but…

JEFFREY BROWN: … choosing instead to keep on rolling, despite the high price of filling up at the pump.

Carpooling and public transport

Stephen Reich
University of South Florida
We're seeing some shift in carpooling... And we are seeing a softening of demand for gasoline, as well as an actual decrease in some highway travel.

JEFFREY BROWN: And we take a look at what actually drives consumers with Stephen Reich, program director at the Center for Urban Transportation Research at the University of South Florida, and Dan Ariely, professor of behavioral economics at MIT's Sloan School of Management and author of "Predictably Irrational: The Hidden Forces that Shape our Decisions."

Well, Stephen Reich, everyone feels the pain, but how much are we actually changing our transportation habits? What do you see?

STEPHEN REICH, University of South Florida: Well, we see an increase in transit ridership from 2006 to 2007 of about 6 percent. But understand that transit ridership in the United States represents about only 5 percent of all the travel that Americans make.

We're seeing some shift in carpooling. We're seeing attitudinally a lot of survey results are showing that people are saying that they're combining their trips or what we call trip-chaining. And we are seeing a softening of demand for gasoline, as well as an actual decrease in some highway travel.

JEFFREY BROWN: Dan Ariely, when you study these things, what does it take to actually force a kind of psychological shift? Are there, for example, thresholds that you look for where you say, "OK, now something's happened and people are changing their behavior"?

DAN ARIELY, Massachusetts Institute of Technology: Yes, very much so. So if you think about driving, we've kind of cornered ourselves into a very difficult situation.

We live far away from work, far away from shopping. Our kids need commuting. In fact, there's not that much flexibility in the system. And even increasing price changes are not going to help us make a change unless something really calls to our attention.

So it looks like, when prices jump the dollar sign, people actually think and reconsider their action. So when prices hit four dollars, people seemed to be worried. I think, when the prices will hit five dollars, people will get more worried and will think about more changes.

And, of course, when prices will hit $10 at some point, people would really get upset and would really think about how they change their behavior.

Optimism stymies change

Dan Ariely
Author, "Predictability Irrational"
One of the interesting things about gasoline is how the changes have happened over the past five years... Because it went up so slowly over time, we got immunized in some sense to this increase in prices.

JEFFREY BROWN: But prices have been -- this time around, have been rising. We've hit a few dollar marks along the way. It's been rising over a few years. Can you compare it to other changes or even other consumer products you watch to see where's that shift when suddenly something happens?

DAN ARIELY: So one of the interesting things about gasoline is how the changes have happened over the past five years. They've been very gradual, so they haven't been quick.

I mean, imagine that we woke up one day four years ago and, all of a sudden, the price would have jumped from one dollar to five dollars. We would have been shocked and changed our behavior. But because it went up so slowly over time, we got immunized in some sense to this increase in prices.

The second thing is the fluctuation. Prices have not increased steadily over time. They have been going up and down, up and down.

And as B.F. Skinner showed us many years ago, when you have an unpredictable sequence of rewards, people don't change their behavior that much. In fact, when I go ahead and I ask people what they think the price in the future will be, people are very optimistic about the future of the prices in the future.

And I think the reason is because of the fluctuation. They really hope that it will go down. They have seen ups; they have seen downs. They hope that more downs are coming. And as a consequence, people just don't change their behavior enough.

JEFFREY BROWN: Well, Stephen Reich, because there is a history here -- we've raised it, I think especially from the 1970s -- does thinking about that period or comparing that help you think about where we're at today, in terms of behavior and how strong that change might be or how lasting it might be?

STEPHEN REICH: There are some parallels, but there are some differences. The parallels that I'm afraid may exist is that there is some comfort level that people began to feel after they get used to a certain pricing point and revert to old behaviors.

What's very different from a transportation standpoint in current times is that, when we look at changes in behavior back in the '70s, when there were oil shortages in '73 and '79, and try to link that with changes in driver behavior, it wasn't really a matter of cost as much as it was a matter of supply.

You just couldn't get the gasoline. And many of us that are old enough to remember that remember spending lots of gasoline, waiting in lines to try and get it.

So it's very different now, as we see the behavior shift, trying to understand where the elasticity is and where the behavior might change permanently, just based on the cost. So, again, parallels and differences.

Perception key in behavior changes

Dan Ariely
Author, "Predictably Irrational"
If you think about how difficult it is for individuals to make a change, unless you live in the city with good public transport, unless you have a system with some kind of buses or bike lanes, you don't really have much option.

JEFFREY BROWN: And staying with you, there's also a comparison, of course, to other industrialized countries. I mean, in Europe, prices have been much higher than ours for many, many years. So is that a useful comparison?

STEPHEN REICH: Well, I'm not sure that it is in that the prices in Europe have been high, relative to the U.S. costs, for many years, due to different social behaviors that they're trying to encourage.

What's frustrating here is, had we been paying four dollars per gallon and those costs were being used to offset the environmental damage or address public health issues or invest in alternative energies so that we could diversify our fuel portfolio, we'd be in a much better position these days.

As it is now, the money is going -- it's a great transfer of wealth, money moving offshore, perhaps money going to speculators. So, again, it's very different. I mean, those prices were set high to encourage specific behaviors, particularly in Europe.

JEFFREY BROWN: Professor Ariely, you look at these things and you wonder, always, when do you know that these things take hold? How long-lasting are they? Is there any way from your profession, the kind of things you study to know when a shift becomes a truly fundamental change?

DAN ARIELY: No, because it is about perception. I think actually, from this perspective, the comparison to Europe is very informative.

I didn't grow up in this country and I'm still amazed about how low prices of gasoline here are. I mean, for me, it's the only thing that has a basically constant price that hasn't increased since I grew up. Everything else has gone up in price.

So I think there is a huge importance of how much historically we're used to paying for something. And that will determine, really, the value that we get from something.

So if you grew up in Europe and you're used to paying five dollars a gallon, you go to the U.S. and you're really excited about how cheap prices are.

I think the real challenge is about, how do we get people to make changes? And if you think about how difficult it is for individuals to make a change, unless you live in the city with good public transport, which we don't have that many, unless you have a system with some kind of buses or bike lanes, you don't really have much option.

So how can people collaborate? How can people get to do better?

And I think there's basically two types of interventions. One is to create some kind of mechanism that would allow people to do more car-sharing. And the second one is to just invest in public transport or some other system that would get this thing more efficient.

But an individual by themselves, given all the investment in infrastructure that we've done over many, many years, are basically stuck. And there's nothing to do.

Small change, big help

Stephen Reich
University of South Florida
Slowing down, if you're a freeway driver, for every five miles per hour over 60 miles an hour that you reduce your speed, you can save roughly the equivalent of about 20 cents per gallon at the current prices.

JEFFREY BROWN: Well, Stephen Reich, what do you advise people, given how hard it is to make changes in one's life, for so many people? I mean, it's one thing to take a few more rides in the subway; it's another thing to sell your house and move to a neighborhood where you have to use your car less. What do you advise people?

STEPHEN REICH: Well, particularly in these economic times, it is tough for people to make those choices. And, in fact, it's tough for some of them to get out of an inefficient vehicle and purchase a new vehicle.

There are some things, if public transportation is not an option for you, that I know people have heard over and over again, but they can make some significant differences.

Slowing down, if you're a freeway driver, for every five miles per hour over 60 miles an hour that you reduce your speed, you can save roughly the equivalent of about 20 cents per gallon at the current prices.

In addition, aggressive driving alone can reduce your fuel efficiency by one-third. You've heard the other measures that should be -- take your golf clubs out of your trunk and stop hauling around excess weight.

And, again, you can incrementally begin to chip away at your monthly gas bill, but ultimately the decisions that have been made and the way the country has developed -- I agree with the professor -- it's a very, very difficult market to serve with anything other than an individual means of transport at this point in time.

JEFFREY BROWN: All right, advice for Memorial Day weekend and beyond. Stephen Reich and Dan Ariely, thank you both very much.

STEPHEN REICH: Thank you.

DAN ARIELY: Thank you.