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Consumers' Perceptions and Misperceptions of Energy Costs

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  • Hunt Allcott

Abstract

This paper presents three initial stylized facts from the Vehicle Ownership and Alternatives Survey (VOAS), a nationally representative survey that elicits consumers' beliefs about gasoline prices and the relative energy costs of autos with different fuel economy ratings. First, American consumers devote little attention to fuel costs when purchasing autos. Second, consistent with a cognitive bias called "MPG Illusion," consumers underestimate the fuel cost differences between low-MPG vehicles and overestimate the differences between high-MPG vehicles. Third, Americans' mean and median expected future gas prices were above current prices and predictions of the futures market at the time of the survey. Although it is often argued that misperceived energy costs justify policies to encourage the sale of energy efficient durable goods, these results show that misperceptions and expectations that differ from market information could either increase or decrease energy efficiency.

Suggested Citation

  • Hunt Allcott, 2011. "Consumers' Perceptions and Misperceptions of Energy Costs," American Economic Review, American Economic Association, vol. 101(3), pages 98-104, May.
  • Handle: RePEc:aea:aecrev:v:101:y:2011:i:3:p:98-104
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    File URL: http://www.aeaweb.org/articles.php?doi=10.1257/aer.101.3.98
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    References listed on IDEAS

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    1. Xavier Gabaix & David Laibson, 2018. "Shrouded attributes, consumer myopia and information suppression in competitive markets," Chapters,in: Handbook of Behavioral Industrial Organization, chapter 3, pages 40-74 Edward Elgar Publishing.
    2. McKenzie, David & Gibson, John & Stillman, Steven, 2013. "A land of milk and honey with streets paved with gold: Do emigrants have over-optimistic expectations about incomes abroad?," Journal of Development Economics, Elsevier, vol. 102(C), pages 116-127.
    3. Anderson, Soren T. & Kellogg, Ryan & Sallee, James M., 2013. "What do consumers believe about future gasoline prices?," Journal of Environmental Economics and Management, Elsevier, vol. 66(3), pages 383-403.
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    Cited by:

    1. Lucas W. Davis & Gilbert E. Metcalf, 2016. "Does Better Information Lead to Better Choices? Evidence from Energy-Efficiency Labels," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 3(3), pages 589-625.
    2. Jack, Kelsey & Jayachandran, Seema & Rao, Sarojini, 2018. "Environmental externalities and free-riding in the household," CEPR Discussion Papers 12558, C.E.P.R. Discussion Papers.
    3. Vesterberg, Mattias, 2017. "Heterogeneity in price responsiveness of electricity: Contract choice and the role of media coverage," Umeå Economic Studies 940, Umeå University, Department of Economics.
    4. Espey, Molly, 2013. "Automobile Fuel Economy: Under-valued, Over-valued, or Both?," 2013 Annual Meeting, August 4-6, 2013, Washington, D.C. 150691, Agricultural and Applied Economics Association.
    5. Andor, Mark & Gerster, Andreas & Sommer, Stephan, 2016. "Consumer Inattention and Decision Heuristics: The Causal Effects of Energy Label Elements," Annual Conference 2016 (Augsburg): Demographic Change 145778, Verein für Socialpolitik / German Economic Association.
    6. repec:eee:enepol:v:111:y:2017:i:c:p:75-84 is not listed on IDEAS
    7. Vesterberg, Mattias, 2017. "The effect of price on electricity contract choice," Umeå Economic Studies 941, Umeå University, Department of Economics.
    8. repec:eee:eneeco:v:64:y:2017:i:c:p:63-76 is not listed on IDEAS
    9. Friesen, Lana & Earl, Peter E., 2015. "Multipart tariffs and bounded rationality: An experimental analysis of mobile phone plan choices," Journal of Economic Behavior & Organization, Elsevier, vol. 116(C), pages 239-253.
    10. Xue, Lian & Sitzia, Stefania & Turocy, Theodore L., 2017. "Mathematics self-confidence and the “prepayment effect” in riskless choices," Journal of Economic Behavior & Organization, Elsevier, vol. 135(C), pages 239-250.
    11. Hunt Allcott & Nathan Wozny, 2012. "Gasoline Prices, Fuel Economy, and the Energy Paradox," NBER Working Papers 18583, National Bureau of Economic Research, Inc.
    12. repec:eee:joepsy:v:61:y:2017:i:c:p:1-14 is not listed on IDEAS
    13. Hymel, Kent M. & Small, Kenneth A., 2015. "The rebound effect for automobile travel: Asymmetric response to price changes and novel features of the 2000s," Energy Economics, Elsevier, vol. 49(C), pages 93-103.
    14. repec:eee:eneeco:v:69:y:2018:i:c:p:59-70 is not listed on IDEAS
    15. Kahn, Matthew E. & Walsh, Randall, 2015. "Cities and the Environment," Handbook of Regional and Urban Economics, Elsevier.
    16. Valeria Di Cosmo, Sean Lyons, and Anne Nolan, 2014. "Estimating the Impact of Time-of-Use Pricing on Irish Electricity Demand," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2).
    17. Mizobuchi, Kenichi & Takeuchi, Kenji, 2013. "The influences of financial and non-financial factors on energy-saving behaviour: A field experiment in Japan," Energy Policy, Elsevier, vol. 63(C), pages 775-787.
    18. repec:eee:enepol:v:110:y:2017:i:c:p:609-618 is not listed on IDEAS
    19. Allcott, Hunt & Mullainathan, Sendhil & Taubinsky, Dmitry, 2014. "Energy policy with externalities and internalities," Journal of Public Economics, Elsevier, vol. 112(C), pages 72-88.
    20. Chen Wang & Ricardo Daziano, 2015. "On the problem of measuring discount rates in intertemporal transportation choices," Transportation, Springer, vol. 42(6), pages 1019-1038, November.
    21. Cosmo, Valeria Di & O’Hora, Denis, 2017. "Nudging electricity consumption using TOU pricing and feedback: evidence from Irish households," Journal of Economic Psychology, Elsevier, vol. 61(C), pages 1-14.
    22. repec:kap:jcopol:v:40:y:2017:i:4:d:10.1007_s10603-017-9361-0 is not listed on IDEAS
    23. D’Haultfœuille, Xavier & Durrmeyer, Isis & Février, Philippe, 2016. "Disentangling sources of vehicle emissions reduction in France: 2003–2008," International Journal of Industrial Organization, Elsevier, vol. 47(C), pages 186-229.
    24. Daziano, Ricardo A., 2015. "Inference on mode preferences, vehicle purchases, and the energy paradox using a Bayesian structural choice model," Transportation Research Part B: Methodological, Elsevier, vol. 76(C), pages 1-26.
    25. Arik Levinson, 2016. "Energy Efficiency Standards Are More Regressive Than Energy Taxes: Theory and Evidence," NBER Working Papers 22956, National Bureau of Economic Research, Inc.

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