Last week my wife and I pulled into Costco and were amazed at the line of cars waiting to get gas. You would think this was the only place in town. As we drove by, I said to my wife, “What are these people thinking?”
There is no doubt that Costco gas is lower than your average gas station. But at what cost? According to Gas Buddy, at the time of this writing the gas at Costco sold for $2.93 per gallon. That compared with $3.19 per gallon everywhere else with no lines whatsoever. So, the people going to Costco saved 26 cents per gallon. That is a nice savings!
You Are Worth $6 – $15 per hour
Let’s say you have a large gas tank and it takes 19 gallons to fill it up. That is a $5 savings! Not too shabby. Except there is no concept of time taken into the equation. If all else were equal, it would be a no brainer to go to Costco. But when was the last time you went to Costco gas, or drove by it, during daylight hours and didn’t see a large line? Unless you are filling up early in the morning or late at night, you will sit in a line. This is where the deal isn’t so much of a deal.
Let’s say there are five cars in front of you and it takes, on average, 4 minutes for each car to pull up, swipe their card, fill up and pull out. That means your wait is 20 minutes. Waiting 20 minutes to save $5 means that you value yourself at $15/hour. The very same people that may charge $100 or $200 per hour at work debase themselves to $15 per hour when waiting for gas. And that assumes the tank is large and the line is not significant.
But what if you have a sedan that will take 12 gallons and you go on your way home from work where there are eight cars in front of you? Your total savings would be $3.12, but you would wait over a half hour to get the gas. That means your value would drop to around $6 per hour.
Why Do We Do This?
There are many potential factors into why we substantially devalue our time when it comes to getting gas. One significant reason is that we just don’t think ahead. The brain runs on mental shortcuts and information that is easy to discern. Saving 26 cents per gallon is an easy calculation; it’s a no brainer. Let’s go!
Thinking ahead, actually any kind of thinking, requires greater effort. We would need to consider how many other people are getting gas around this time and compare it with our expected savings and how we value ourselves. Even if we were going to Costco to do some shopping, it would still behoove us to stop at a gas station with no wait on our way to or from Costco.
Another potential reason is the sunk cost fallacy. We already drove to the station; we are here. Might as well just grin and bear it. If we left upon arriving and witnessing the line of cars, then this would have been a wasted trip. Apparently we are okay wasting our precious time, but not a trip to the gas station.
Perhaps the greatest reason we do this is the lure of the deal.
We Are Smitten By Deals
The greatest factor in all of this is the psychological benefit to getting a deal. It’s not the financial effect of saving $3 – $5. It’s the psychological feeling of getting a deal! It’s the hormones that make us feel good, dopamine and serotonin. This happens in many parts of our financial lives, not just with gas.
Many stores thrive on sales. They jack up prices to artificially high levels so they can put them on sale and maintain their desired profit margin. Thanks to the anchoring bias, we see the higher price, then the current price, and our brains are now primed to have a positive psychological reaction to buying the good. Whether that is a sweater that is 40% off (like the perpetual sales at Kohl’s) or the fact that we are getting gas at a cheaper price than across the street.
It is quite humorous how crazy this bias makes us. We have no problem buying a mutual fund or stock with little to no thought, but will spend 20-30 minutes in line to save a few dollars on gas. Completely irrational, but when you bring emotions into the equation, our behavior becomes more understandable.