Business Insight Zone

That’s a question I’ve talked over with several friends lately. So far, $3/gallon gas hasn’t made a big dent in U.S. driving habits, but then again it’s pretty hard to move closer to work — especially in a bad real-estate market — and a lot of people are set in their ways when it comes to driving. Or, to put it another way, for a lot of people, $3/gallon gasoline isn’t expensive enough to get them to change their driving patterns.

Keith Johnson has more on these issues, including links to recent research, in this Wall Street Journal Energy Roundup post:

Pump Prices: Will Drivers Finally Squeal For Real?

When we observe how human psychology links up to economic decision-making, we see some curious things. (This reality is the root of the discipline of behavioral economics, which I plan to talk about much more in 2008.) In the case of gasoline prices, we notice that people tend not to make cold, rational calculations that weigh the dollar cost of gas against the dollar costs of other utilities — things like hanging on to less fuel-efficient cars, keeping the same jobs, keeping the same houses, or keeping the same office schedule instead of telecommuting.

Rather, people tend to trundle along as they’ve been doing until they reach some sort of psychological or financial tipping point– say, when the family gasoline bill passes some round number like $300 per month.

Apparently, $3/gallon gasoline isn’t expensive enough to drive these changes for many people. But if oil prices trend north — if they park above $110/barrel, for instance — the follow-on increases in gasoline prices will start to have much more of an effect. A move from $3/gallon to $4/gallon should have far more impact than the move from $2/gallon to $3/gallon.

In any event, it will be interesting to see what shapes up through the course of 2008. Meanwhile, I’m glad I live within 15 minutes of work.

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[Photo by racoles; used under CC Attribution license.]

Category: Energy, The working life, Transportation