Not All Fuel Efficiency Is Equal: Understanding the Miles-Per-Gallon Illusion

As the Detroit auto show gets underway, fuel efficiency, as always, will be a much-touted feature when automakers pitch new vehicles. Yet miles-per-gallon claims can confuse the uninitiated. Sometimes, as in the case of upgrading vehicles, mpg values can be irrelevant.

Duke Professors Richard Larrick and Jack Soll first described (free sign-in required) this concept in a 2008 Science article. Richard Thaler and Cass Sustein have continued the conversation at their Nudge blog. The mpg illusion happens mainly because our brains are not very good at doing quick math. We make fast, usually incorrect, assumptions about the meaning and usefulness of numbers.

Most people consider a 5-mpg increase to have the same value in gas saved, regardless of starting point. Consider the following examples:

Car A improves its fuel efficiency from 15 mpg to 20 mpg.
Car B improves its fuel efficiency from 40 mpg to 45 mpg.

Which one saves more gas? Most people will say it’s equal, but the winner is car A. To better understand this, stop thinking in mpg terms. Instead, think in gpm terms—as in gallons per mile. If you were to drive each car 10,000 miles, about the average for a full year, you’d get these usage numbers:

CAR A
10,000 miles / 15 mpg = 667 gallons used
10,000 miles / 20 mpg = 500 gallons used

CAR B
10,000 miles / 40 mpg = 250 gallons used
10,000 miles / 45 mpg = 222 gallons used

If we rewrote the sentences above, we’d see:

Car A improves its fuel efficiency from 667 gallons used to 500 gallons used.
Car B improves its fuel efficiency from 250 gallons used to 222 gallons used.

The seemingly “equal” 5-mpg increase was worth 167 gallons per year when applied to the less-efficient car A. Car B, however is already efficient, so 5 mpg is worth only 28 gallons. In order to save the same 167 gallons, car B would have to get all the way to an astonishingly high 120 mpg.

Spend a minute to think about that. The difference in gas saved from 10 mpg to 15 mpg is the same as going from 40 mpg to 120 mpg. This means that once we start reaching ever-higher numbers of mpg efficiency, they matter increasingly less. The big gains are made on inefficient cars. It also means that even 1 mpg gained for an inefficient car is worth a lot more miles per gallon when compared to efficient cars. The difference from 10 mpg to 11 mpg is the same as going from 40 mpg to 63 mpg.

This will be handy to remember when you start seeing super-efficient mpg levels on high-tech cars. It doesn’t really matter all that much.

The U.S. Environmental Protection Agency changed its fuel-mileage stickers on new cars so as to more accurately highlight the gallons-per-mile concept and the amount of dollars saved. Even the government knows that mpg doesn’t matter as much when trying to buy a car.

Here is the old sticker:

And here’s the new one:

Before it's here, it's on the Bloomberg Terminal.