Behavioral Economics

[haypops]

listen here

You'll need earphones or speakers. This is an NPR report on "behavioral economics". They start with a rather long description of people trading in their SUVs at Car Max. There are some funny moments like when the author describes why people over react to gas prices. Fun segment in my opinion.

[balthazar]

Anyone with any logical or analytical mind should be able to calculate this. Gas is right about $1.00 more a gallon than 1 year ago. On the usual average of 12,000 miles/yr, even at -say- 15 mpg- that's only $800 more a yr to drive than 1 year ago, when we really weren't hearing quarterly-hour reports on the price of gas/ a barrel & no one was bitching. People waste $800 in a snap- 'upgrading' with appliances, electronics, furniture, toys, food, etc etc etc. In these areas, they want it, so the expenditure is 'justified' and never given a moment's thought. But gas is needed, so somehow any increases there are a personal affront and loosing tens of thousands in a run on trade-ins in the media/mass hysteria somehow makes some sort of sense.

Possilbe scenario: I 'need' to go from 15 MPG to 23. I sell my truck and lose $15K, buy a new compact that doesn't fit my needs, spend $23K there, but now I'm happy because I'm 'saving' $1100 a year in gas, even tho I 'spent $38,000 to do so. In 34 years I'll actually break even on that deal. Stupid, but happy.

[Robert Hall]

Yes, looking at it logically and rationally, I spent an average of $45/week last year at this time (just had to check my Quicken records from then), vs. $75/week average now. Not a big deal---$30, the cost of a dinner or two.

I think far too many people spend beyond their means and don't do the proper daily financial monitoring, tracking of income, expenditures, budgeting, etc... MS Money or Quicken are great tools to track your financials with.

[haypops]

I thought the author's comparison of standing at the gas station watching numbers go up as you pump vs picking up a yogurt at the market was amusing and telling.

People only give lip service to "everything in moderation". It's feast or famine going from a crew cb pickup to and Aveo instead of a Malibu in the first case and a ... Malibu in the second place.

[CARBIZ]

Anyone with any logical or analytical mind should be able to calculate this. Gas is right about $1.00 more a gallon than 1 year ago. On the usual average of 12,000 miles/yr, even at -say- 15 mpg- that's only $800 more a yr to drive than 1 year ago, when we really weren't hearing quarterly-hour reports on the price of gas/ a barrel & no one was bitching. People waste $800 in a snap- 'upgrading' with appliances, electronics, furniture, toys, food, etc etc etc. In these areas, they want it, so the expenditure is 'justified' and never given a moment's thought. But gas is needed, so somehow any increases there are a personal affront and loosing tens of thousands in a run on trade-ins in the media/mass hysteria somehow makes some sort of sense.

Possilbe scenario: I 'need' to go from 15 MPG to 23. I sell my truck and lose $15K, buy a new compact that doesn't fit my needs, spend $23K there, but now I'm happy because I'm 'saving' $1100 a year in gas, even tho I 'spent $38,000 to do so. In 34 years I'll actually break even on that deal. Stupid, but happy.

You're assuming gas STAYS at $4 a gallon down there. What if it goes to $6? I agree that many people are over reacting, but we need a crystal ball to guess where gas prices will be a year FROM now. I've seen my gas bill climb $60 a month, and I only travel about 6-700 miles a month.

[Chevy Nick]

good post

[GMTruckGuy74]

Well, we recently went from a 4WD SUV ('05 Envoy) to a more fuel efficient mid-size car (Pontiac G6); however, I don't consider us a part of that article because the Envoy was leased for 3 years and was due to end on August (18th). We took advantage of GMAC's Pull-Ahead Program and got out of the lease a month & a half early. While the wife did want another SUV <although a tad smaller one (VUE)>, the 32 mile one-way commute dictated that a car giving better fuel economy & easing the pain on our bank account would be the better choice.

On a side note, when my lease ends in 17 months (November, 2009), I will consider replacing my mid-size car with another SUV since I drive much less and can use the utility more, but as long as the gas prices haven't soared to astronomical levels. Now if GM were to offer me a sporty <station> wagon, say one wrapped in Pontiac sheetmetal (hint-hint: G8 SportWagon :AH-HA_wink: ), I would really, really, really consider going for that instead.

[Oracle of Delphi]

Well, we recently went from a 4WD SUV ('05 Envoy) to a more fuel efficient mid-size car (Pontiac G6); however, I don't consider us a part of that article because the Envoy was leased for 3 years and was due to end on August (18th). We took advantage of GMAC's Pull-Ahead Program and got out of the lease a month & a half early. While the wife did want another SUV <although a tad smaller one (VUE)>, the 32 mile one-way commute dictated that a car giving better fuel economy & easing the pain on our bank account would be the better choice.

On a side note, when my lease ends in 17 months (November, 2009), I will consider replacing my mid-size car with another SUV since I drive much less and can use the utility more, but as long as the gas prices haven't soared to astronomical levels. Now if GM were to offer me a sporty <station> wagon, say one wrapped in Pontiac sheetmetal (hint-hint: G8 SportWagon :AH-HA_wink: ), I would really, really, really consider going for that instead.

G8 Sportwagon? Better checkout www.nosuchpontiac.com

[GMTruckGuy74]

G8 Sportwagon? Better checkout www.nosuchpontiac.com

Oh come on! First you tell me that I shouldn't be holding my breath for the GMC Denali XT concept to become a reality, now you're telling me that I shouldn't put any faith into a Pontiac G8 SportWagon either? You know, you were so helpful to me when you first joined C&G :AH-HA_wink:

[Oracle of Delphi]

Sorry bud, would you rather I lie to ya?

[GMTruckGuy74]

Sorry bud, would you rather I lie to ya?

No, I guess I wouldn't. But it would be nice for you to tell me something positive! With all of the "doom & gloom" surrounding GM lately, and everything I'd want to buy when the time comes not looking too good (Sierra Crew Cab Z71 <fuel costs too much to bare along with the monthly payment>, the Denali XT concept not becoming a reality, no G8 SportWagon on the horizon, etc.), I need some good news sometime soon to keep the little light-at-the-end-of-the-tunnel from extinguishing!!!

[balthazar]

You're assuming gas STAYS at $4 a gallon down there. What if it goes to $6? I agree that many people are over reacting, but we need a crystal ball to guess where gas prices will be a year FROM now. I've seen my gas bill climb $60 a month, and I only travel about 6-700 miles a month.

No; I'm talking about the panic of today vs. the acceptance of 1 year ago. Sure- no one wants to pay more for anything, and yes, it'll likely climb in the future, but the people who are increasingly running out of fuel on the highway because they 'can't afford to fill up' are not smart enough to plan long-term... ie; they're not selling now because fuel might be higher in the future.

[CSpec]

Anyone with any logical or analytical mind should be able to calculate this. Gas is right about $1.00 more a gallon than 1 year ago. On the usual average of 12,000 miles/yr, even at -say- 15 mpg- that's only $800 more a yr to drive than 1 year ago, when we really weren't hearing quarterly-hour reports on the price of gas/ a barrel & no one was bitching. People waste $800 in a snap- 'upgrading' with appliances, electronics, furniture, toys, food, etc etc etc. In these areas, they want it, so the expenditure is 'justified' and never given a moment's thought. But gas is needed, so somehow any increases there are a personal affront and loosing tens of thousands in a run on trade-ins in the media/mass hysteria somehow makes some sort of sense.

Possilbe scenario: I 'need' to go from 15 MPG to 23. I sell my truck and lose $15K, buy a new compact that doesn't fit my needs, spend $23K there, but now I'm happy because I'm 'saving' $1100 a year in gas, even tho I 'spent $38,000 to do so. In 34 years I'll actually break even on that deal. Stupid, but happy.

Yes I also never understood why people freak out so much about a relatively small increase in annual expense. Trying to sell your house at 40% less than what you bought it is probably a bigger worry.

[haypops]

Now if GM were to offer me a sporty <station> wagon, say one wrapped in Pontiac sheetmetal (hint-hint: G8 SportWagon :AH-HA_wink: ), I would really, really, really consider going for that instead.

I think small cars are the next thing to come from GM (DUH)

Just another article saying kill brands and make small cars

Other than that, what should be next from GM? A cross-over bigger than the VUE but smaller than the Outlook triplets(soon to be quartet), a Malibu wagon called the nomad with some retro style, or a true half ton pickup like those in the 80"s and earlier (todays half ton pickups can tow 10,000 pounds and must be too sturdy to be economical)?

[ZL-1]

Other than that, what should be next from GM? A cross-over bigger than the VUE but smaller than the Outlook triplets(soon to be quartet), a Malibu wagon called the nomad with some retro style, or a true half ton pickup like those in the 80"s and earlier (todays half ton pickups can tow 10,000 pounds and must be too sturdy to be economical)?

A crossover on DeltaII or Gamma would be more interesting than something bigger than the VUE, IMHO.

The Malibu wagon is a good idea.

[regfootball]

even though some folks may only be spending another 100 bucks per car per month for gas, its a disproportionate increase vs. other expenses and especially vs. everyone's stagnant wages.

that is why folks get their shorts in a bind. also, 100/mo/car = 2400 bucks that is better spent on luxury items or debt reduction, etc. 2400 pissed away with nothing to show.

flipside, to get obsessed with small cars for a little savings in gas? If you lose 10k on your SUV to save 1 grand a year in case, that's reactionary but typical of the mindset of clueless f-k Americans these days. Same folks who only look at toyotas because that's what CR said.

I look at it this way, if my fleet goes from 20mpg to 30mpg.....at 30,000 miles, I am going from using 1500 gallons down to 1000 gallons, saving 500 gallons. but more importantly, I save 500x4 dollars = 2,000 dollars in that equation. Do I care? Well, for one, I don't stroke my ego by overspending in my car payments by several thousand a year, to drive a snobby import rig vs my basic domestics. And my insurance on my larger 'fuel suckers' is less than it would be in say, a civic or a jetta. Possibly to the tune between my two cars as much as 500-1000 bucks a year. And I am not paying 80 bucks for a dumb oil change like the VW owners do.

By now you've grasped that i don't really give a FF if I am putting out more CO2 or burning more gas and that I am only concerned mostly with my pocketbook. I am like most Americans in that regard. I am not buying a Prius with its high envirnmental impact and deadly electric almost unrecyclable battery, either. Remember the H3 has less envirnmental impact than a Prius.

Also keep in mind a 25,000 dollar Prius is a nice gesture, but a 15,000 Versa will save you lots more money. It's pretty irresponsible to spend 10 grand more for a car that is functionally about the same. You could spend that 10 grand on education for your kid or donate it to cancer or autism research for example. And you'd be doing society a far greater service than just to merely say 'oh, i hump the green environment because i put out 23% less CO2" when that money could go to CHANGE SOMEONE'S LIVES (and you'd still get a helluva tax break).

So why then do I bitch at 4 dollar gas? Well, the 2k a year in gas is equal to 3k (pretax) a year in increased wages after tax. And since that is the amount of raise most folks in the US are happy to get these days, we don't want to see our raises wiped out entirely for freaking gas. Especially when your variable rate loans shot up and your property taxes shot up and food and electric and gas bills do also. All those expenses have gone up 25-50% in the last 4 years of BUSH so to add a 200% gas price increase on top of that is salt on the wound. No one wants their 4% wage increase to be offset by yearly 10-25% increases in all their expenses. No wonder our economy is in the crapper. So what is your threshold of pain? Are you willing to give up your large car to drive a &#036;h&#33;box which repeatedly time and time again we have proved Americans will drive as large as their pocketbook allows? No one drives a small car out of want...(almost no one). There are some darn good small cars out there for commuting, but all too often we ask our cars to do more for the big bucks we spend on payment and insurance.

People are simply reactionary right now because of the uncertainty and this desire to have to show off being green but the cycle will come around again and at some point the population will say 'fk this green bull&#036;h&#33;, i just want to drive comfortable and for a reasonable amount of $$$$$$'. They don't even care if their car is efficient. It's just that we work all day and don't want to see what little financial progress WE try to make for OURSELVES get pissed away into the hands of oil barons, exxon, cheney's inner circle, or wall street and futures speculators.

I would suggest to all the ego driven snobs that maybe a better solution would have been to not buy the outrageously expensive SUV's and imports they have been. Just like you can say no one needs an SUV, no one needs to spend 50,000 on a car when they can have a pretty sweet car for 25,000-30,000. So if 4 dollar gas has you crying because you can't drive your LEXUS or AUDI anymore, than i have zero sympathy for you in the first place. That nice lexus ES camry you NEEDED could have easily been replaced with something more responsible.

Edited July 7, 2008 by regfootball

[balthazar]

>>"even though some folks may only be spending another 100 bucks per car per month for gas, its a disproportionate increase vs. other expenses....

also, 100/mo/car = 2400 bucks that is better spent on luxury items or debt reduction, etc. 2400 pissed away with nothing to show."<<

12,000 miles/yr = 1000 miles / mnth. Divided by 20 MPG = 50 gallons / mnth.

Last year : $150, this year : $200. That's $50/car/mnth, not "only $100". Sure: some are paying more, and some are paying less- depends on MPG & miles driven.

$100/car/month = $1200/year, not $2400. But on average were looking at $50/car/month, or $600/yr.

Let's at least get the math straight so we can focus on being hysterical.

Edited July 8, 2008 by balthazar

[Intrepidation]

No; I'm talking about the panic of today vs. the acceptance of 1 year ago. Sure- no one wants to pay more for anything, and yes, it'll likely climb in the future, but the people who are increasingly running out of fuel on the highway because they 'can't afford to fill up' are not smart enough to plan long-term... ie; they're not selling now because fuel might be higher in the future.

Very well put. If only so many people actually used their heads and thought about this for a moment before destroying their credit and spending thousands to save a hundreds. People just believe whatever drivel the media can spew out and whatever comes out of the idiot box.

[Camino LS6]

Bottom line: Don't be sheep!

[Croc]

Here's the thing, though...increasing gas prices are not insular. You may be spending an extra $30 a week at the pump, but so is everyone. As a result, the overall cost of living increases. Moltar's $30 dinner for two in 2007 now costs $40.

[regfootball]

>>"even though some folks may only be spending another 100 bucks per car per month for gas, its a disproportionate increase vs. other expenses....

also, 100/mo/car = 2400 bucks that is better spent on luxury items or debt reduction, etc. 2400 pissed away with nothing to show."<<

12,000 miles/yr = 1000 miles / mnth. Divided by 20 MPG = 50 gallons / mnth.

Last year : $150, this year : $200. That's $50/car/mnth, not "only $100". Sure: some are paying more, and some are paying less- depends on MPG & miles driven.

$100/car/month = $1200/year, not $2400. But on average were looking at $50/car/month, or $600/yr.

Let's at least get the math straight so we can focus on being hysterical.

sorry, my math is a two car scenario. maybe your scenario does not apply. when i get fked at the gas pump....its by a factor of two so you can understand why i might be pissed about it.

my tandem puts on around 33k per year actually. 2 years ago, we were on a 40k per year pace.

so your scenario of a below average 12k a year for one car is not as dreadful, but its not that common either. i know tons of people who for various reasons were racking up a combined 40k miles a year.

besides, your 600 a year, factor back in the taxes you paid to arrive at 600 net on the paycheck, its closer to 1000 bucks of your wage that went for extra. In my case, 2400 is somewhere between 3000-3500 bucks gross income that is lost. So when the bossman says, congrats son, here's your 3 percent raise....and your spouse loses work and has to take a 20 percent pay cut because the economy is in the crapper......gas is the insult to injury. actually my raise at work was 7 percent this year but my company average was 3.5% and many did not get a raise. but getting a raise is actually a slap in the face if all it does is go to offset the increased gas cost. really, it reduces life to one big freaking joke.

it's easy to simplify the extra gas cost and say its incremental but truth is its hardly anything most working folks consider 'incremental' when the monthly assault snowballs to everything else in your budget.

Edited July 8, 2008 by regfootball

[regfootball]

Here's the thing, though...increasing gas prices are not insular. You may be spending an extra $30 a week at the pump, but so is everyone. As a result, the overall cost of living increases. Moltar's $30 dinner for two in 2007 now costs $40.

you can't get lettuce wraps for appetizers for 40 bucks. grrrrrr..........

[Robert Hall]

you can't get lettuce wraps for appetizers for 40 bucks. grrrrrr..........

Hmmm...went out for Chinese Friday night and lettuce wraps were about $8...dinner for 2 w/ wine was about $40...(but this was a good local place, not a chain).

[balthazar]

>>"sorry, my math is a two car scenario."<<

OK, then : "$100/mnth/2 cars = $2400"

>>"so your scenario of a below average 12k a year..."<<

May be below average for you, but that's the most common average mileage figure used. BTW- I put 11,689 miles on my truck from 06-13-07 thru 06-16-08. Yes, my wife has a car, too (not sure what her miles run, about the same)

>>"I know tons of people who for various reasons were racking up a combined 40k miles a year."<<

Oh sure- no doubt. But per car still should average 12K nationally (a minority of sources say 15K).

>>"...your 600 a year, factor back in the taxes you paid to arrive at 600 net on the paycheck, its closer to 1000 bucks of your wage that went for extra."<<

True, but this is really reaching. Taxes off wages effect every dollar you spend, not just those for fuel.

>>"it's easy to simplify the extra gas cost and say its incremental but truth is its hardly anything most working folks consider 'incremental' when the monthly assault snowballs to everything else in your budget."<<

Agreed: the price on EVERYTHING is rising, and overall it hurts. But fuel alone is getting a monster-share of attention, esp in light of the theory that U.S. gas has been underpriced for decades & decades. People are running out of gas on the roadside because they "couldn't afford to fill up'; that's idiocy and unfounded. There had better only be store-brand bulk food & off-name clothes back in their houses if things are that tight... or I see too many crying 'victim' otherwise.

[haypops]

People are running out of gas on the roadside because they "couldn't afford to fill up'; that's idiocy and unfounded.

The Auto Club gives away free gas here if you run out. NPR radio interviewed a tow truck driver who said he sees repeat offenders who purposely do it for the free gas.

[CARBIZ]

I think most of this is just media hype. We see a lot of consumers sniffing around small cars and 'thinking' about dumping their gas guzzlers, but I don't really see any hysteria out there. If someone has a lease on a TB coming up in 3 months, they would probably be looking at the Vue or Edge or something like that. I doubt they would see the benefit to dumping the vehicle now.

Having said that, however, we can't rule out the possibility of the kind of rationing and over-reaction we saw during the dark days of '73/'74. Isreal could still very possibly spoil our oil party by bombing Iran. There are still idiots in Sudan and Nigeria. A crackpot is running Venezuela. The Mexican peso is still not worth the paper it is printed on. The U.S. is experiencing Vietnam II in Iraq. Frankly, the political/economic climate is quite ripe for a return to the mid-70s.

IMO, any prudent consumer would be researching getting out of their gas guzzler in a timely fashion. Better to get $15k for your Tahoe now then $5k for it a year from now, especially if it's nearly paid off. Make sense?

I hope oil prices subside, but I fear they may not.

[haypops]

. The Mexican peso is still not worth the paper it is printed on.

I'm not familiar with that, but I did read that Mexico relies heavily on oil revenues and their oil field does appear tobe drying up with production dropping precipitously.

[CARBIZ]

I'm not familiar with that, but I did read that Mexico relies heavily on oil revenues and their oil field does appear tobe drying up with production dropping precipitously.

.....and they're too busy paying for funerals for dead cops and judges.

[haypops]

.....and they're too busy paying for funerals for dead cops and judges.

That is a very important topic. Most politicians argue about how to punish the 12 million Mexicans who are here, or worry about Ben Laden walking across the southern border (much easier and more common from the North).

The most pressing danger our the drug gangs of Mexico, there gross border trade and violence and ANARCHY. Thanks for bringing it up and bumming me out :-)

[balthazar]

>>"The Auto Club gives away free gas here if you run out. NPR radio interviewed a tow truck driver who said he sees repeat offenders who purposely do it for the free gas. "<<

I heard one club (thought it was AAA) now charges for the 3 gallons. Suprise, right?

[CARBIZ]

That is a very important topic. Most politicians argue about how to punish the 12 million Mexicans who are here, or worry about Ben Laden walking across the southern border (much easier and more common from the North).

The most pressing danger our the drug gangs of Mexico, there gross border trade and violence and ANARCHY. Thanks for bringing it up and bumming me out :-)

Punish? What about a general amnesty? After all, why bother with legal channels and pay all those nasty fees when you can just walk across the border and work illegally, send your kids to school and enjoy all the benefits of our way of life?

In Canada, it is hilariously easy to stay in this country, especially from places like Mexico. Just pretend to be gay and claim persecution, or pay someone $10k to marry you. Works either way.

[vonVeezelsnider]

.....and they're too busy paying for funerals for dead cops and judges.

And Canadian Tourists