The fuel economy puzzle

After yesterday's post about incentivizing gym-goers, a friend and reader tipped me off to this TED video (you know how much I love those) featuring Harvard professor Sendhil Mullainathan, the behavioral economist whose teachings were the inspiration for the gym incentive program. In the video (which is worth watching if you've got time), the professor raised an interesting paradox that had me scratching my head all night because it just seemed so wrong.

The puzzle involves fuel efficiency, and it's particularly pertinent to me at the moment since my wife and I are currently in the market for a new car. To paraphrase the professor...

Consider two car-buying customers. Customer A, a conscientious environmentalist, walks into a Toyota dealership prepared to buy a Toyota Yaris, with a fuel economy estimated at 35 miles per gallon. At the last minute, Customer A changes his mind and decides to go with the more fuel-efficient choice, the Prius, improving his fuel economy to a fantastic 50 miles per gallon.

Customer B, on the other hand, walks into a Hummer dealership (yeah, I know, Hummer's been discontinued, but stay with me here), prepared to buy himself a brand new fully-loaded Hummer with its gas-guzzling 9 miles per gallon fuel "efficiency". Like Customer A, he makes a last-second switch, passing up the Hummer's turbo engine for its more fuel-efficient cousin, thereby improving his Hummer's fuel economy to 11 miles per gallon.

So, with their respective last-minute decisions, which customer has done more to save fuel and end our nation's dependence on foreign oil? Our hippie friend, with his increase from 35 to 50 MPG, or our lead-footed Hummer-driving clod, with his measly increase from 9 to 11 MPG?

The counter-intuitive answer (which you probably already know, otherwise I wouldn't have brought it up), is our gas-guzzling, booze-swilling, chest-thumping friend, Customer B.

Don't believe me? I initially didn't believe it myself, either--after all, even in percent terms, Customer A has clearly made a bigger improvement, increasing his fuel economy by 43% as opposed to Customer B's 22%. But let's walk through this.

Assume both customers exhibit average driving tendencies, and drive 12,000 miles in a year. For Customer A, the Yaris would require about 343 gallons of gas over the course of the year. With the Prius, that number decreases to 240 gallons, a savings of 103 gallons. Customer B, on the other hand, with his 9 MPG Hummer, would require a staggering 1,333 gallons of gas in a year. His switch to the 11 MPG option reduces that number to 1,091 gallons, a savings of 242 gallons (enough to fuel Customer A's new Prius for the whole year).

Clearly we'd like everyone to be like Customer A and buy a fuel-efficient car, but in isolation, Customer B has done more in a split second to reduce our nation's fuel requirements than Customer A ever could. The problem, ultimately, is one of metrics--that is to say, we're looking at the wrong metric to make our decision. More specifically, we're looking at the reciprocal of the right metric.

To gauge true fuel efficiency, the more important metric is not the generally accepted miles per gallon (MPG), but actually gallons per mile (GPM), which measures how much fuel we'll actually require to drive our necessary mileage. When we consider that metric, we see that Customer A has improved his GPM from .029 to .02 (a decrease of .009), while Customer B has improved his GPM from .111 to .091 (a decrease of .02, more than double Customer A's improvement). Looking at the right metric enables us to view the problem correctly, whereas the answer to the puzzle was counter-intuitive using our usual measures--our metrics misled us.

I threw together the chart above to show the problem visually. From that graph, you can see clearly that improving fuel efficiency exhibits diminishing returns--that is to say, the improvement from 9 to 11 MPG counts more than the improvement from 11 to 13 MPG, and so forth. By the time we've gotten down to the tail end of the curve where our friend Customer A lives, there's really not much he can do to improve his impact--he's already gotten the easy gains.

This kind of a problem can have significant implications for public policy (and for our personal decisions). Those who already agonize over fuel economy aren't the problem--assuming they are driving cars above 20-25 MPG already, there's little they can do to help. Even a doubling of their MPG would only save a tiny bit.

What we need to do is get the people who aren't currently worried about fuel efficiency to recognize that small changes by them can indeed make a big difference. Nobody else is capable of doing the heavy lifting that they are, as the chart shows. Therefore, if we were to introduce a minimum allowable MPG of 11 or 12 for all vehicles (which should be a reasonable goal), we could do much more good from a fuel efficiency standpoint than introducing a Chevy Volt or a Nissan Leaf or a 100 MPG super-Prius could ever do. It's a vexing problem, but an interesting one to chew on.

[TED]
(h/t reader Emily)