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The behavioral economics of car sharing

March 20, 2011

Sometimes after having bought my ticket I realize I am watching a bad movie. Should I leave or should I stay? Experimental evidence shows that many people do not leave, even if they had better things to do with their time. Money is already gone, and it does not make any difference to continue until the end of a bad movie. The time and money spent to get the tickets do not matter, and I should better leave the movie theatre and do something more entertaining.

In the eighties two psychologists conducted an experiment. If you were one of the subjects, you would have been asked to imagine having paid $100 for a ski trip to Jackson Hole and $20 for a ski trip to Colorado Spring. For some reasons, you prefer the ski trip to Colorado Spring, but you made a mistake with dates and hotel reservations, which overlap. Therefore, you have to chose only one of the two destinations. What would you choose? Most subjects chose the most expensive trip, instead of the preferred one. Whatever is the final choice, the total bill is going to be $120, so why do they choose the less attractive alternative?

Both behaviors are common and show how we tend to stick to our own commitments we have made even if it is not the most sensible thing to do. Psychologists called it sunk-cost effect. What has this to do with cars? If I buy a car, I want to get the most out of it. And that is good, but this also means that I want to drive my car even when driving is not the quickest or the most comfortable option. Even worse, I do not even consider the alternatives;  I just take the keys and drive without calculating the costs of gas, the time in traffic and the extra time needed to find a parking spot. Sometimes public transit would be cheaper and faster, but once I own a car, I do not care about the alternatives and their opportunity-costs. I drive.

Having access to a car sharing service could reduce the need to buy a car, and, for each trip, we have an incentive to compare which mode of transportation is the most convenient for us, because we have to pay the actual cost for each trip we make. A well developed car-sharing service provides a double benefit in terms of lower traffic congestion: it reduces the need to own a car, and it moderates the urge to drive one.

Moving Beyond the Automobile: Car Sharing from Streetfilms on Vimeo.

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