Gas Prices: How Real Is the Damage?

Gasoline prices in the U.S. have jumped 50¢ a gallon, to an average of $3.77, this year, and in much of the country it’s tough to fill up even a small car for less than $50. The increase has pushed the issue to the front of the political debate, but how much do gas prices really affect a $15 trillion economy? The short answer: quite a bit, though probably less than we imagine.

That’s because buying gas is unlike any other purchase. It’s sold only in stores (gas stations) whose primary purpose is selling gasoline. Even when gas is cheap, we’re well aware of the cost because we see the pennies spinning by on the pump, says Dan Ariely, an economics professor at Duke University. And these days, they’re spinning ever faster. By contrast, when the electric bill arrives in the mail, it doesn’t hit as hard. “Imagine if every night I came up with a tanker and filled your car and three months later gave you a bill,” Ariely says. “Would you really know how much it costs?” With gas, consumers feel “the pain of paying when we see the specific cost … and we feel much worse about it.”