Flexible Fuel Vehicles, Less Flexible Minded Consumers: Price Information Experiments at the Pump

Abstract

This paper addresses a puzzle: why do many of Brazil's energy consumers driving "flexible fuel" gasoline-ethanol vehicles forgo energy savings at the pump, choosing the fuel that yields the lower mileage per dollar of spending, in some cases by a substantial margin? In a large-scale set of randomized experiments with 10,400 consumers at the pump -- the first of its kind -- I raise the salience of the price difference across both fuels, just as the consumer pulls up. The largest treatment effect I obtain is to shift one-tenth of consumers, who absent the intervention would have chosen expensive gasoline, to instead choose very favorably priced ethanol. While statistically significant, this shift is small compared with the higher likelihood that the favorably priced fuel is chosen among college-educated subjects relative to their less schooled counterparts. I estimate the increase in consumer welfare from mandating higher price salience at the pump to be equivalent to a 1 to 3% (general) reduction in fuel prices, depending on the relative price point.