New Research on Why We Panic at the Pumps

FOR IMMEDIATE RELEASE
April 21, 2011
CONTACT: Richard Penny, (425) 352-3395,  RPenny@uwb.edu


BOTHELL, Wash. – Although gas prices tend to spike and then recede, consumers react as if the spikes were permanent, altering spending patterns and curtailing other expenditures, and creating an artificial strain on the economy, according to new research from University of Washington Bothell.

Historical data shows that gas prices regularly shoot up and then drop back down, much like a roller coaster. While it is true that the baseline trend for gas prices is generally on the increase, the rise has been on par with many other, larger expense categories, such as health care and housing.

John Godek, researcher in the Business Program at the University of Washington Bothell, wanted to gain a better understanding as to why consumers react so strongly to spikes in the price of gasoline. Godek’s research indicates that consumers view gasoline price surges as long-term, broad-based shocks to their discretionary income.  As such, individuals tend to account mentally for the spikes in a manner that impacts much of their other spending instead of seeing the spikes as the short-term changes they have historically proven to be. “In other words,” says Godek, “consumers seem to forget that price surges are normal and are typically followed by somewhat equivalent price slides.”

This behavior, though, has serious side-effects. When consumers overreact to spikes by tightening their belts, it creates an artificial strain on the economy. According to Godek, “Understanding this mental accounting framework might help policy leaders communicate more effectively about gasoline price spikes, partially buffering negative impacts on the economy.”

John Godek of UW Bothell and Kyle Murray, of the School of Business at University of Alberta, co-wrote the paper, which is forthcoming in “The Journal of Behavioral Decision Making.”

Godek is available to discuss consumer behavior relating to gas prices. He can be reached at 425-352-3853 or jgodek@uwb.edu.

About UW Bothell: The University of Washington Bothell combines the benefits of a small campus with the resources and prestige of a world-renowned university. Offering over 30 degrees, options, certificates and concentrations, its curriculum emphasizes close student-faculty interaction, collaboration among students, and hands-on learning.For more information, visit www.uwb.edu.

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UW Bothell is the largest branch campus in the state of Washington.