So petrol goes up 32c per litre tomorrow (7 August). When I was a child I never understood why my parents seemed obsessed with the price of petrol. Now, as an adult, my eyes water every time I see the cost of filling my tank up.
Motorist behaviour around the time that petrol prices increase has always interested me. In particular, I have never quite understood why people insist on going out of their way to fill up their tank the day before petrol goes up. It might seem obvious as to why they do this, but consider this angle.
A while back I was at a friend’s house the night before the petrol price was due to go up by around 30c. They remembered that the price was due to go up the next day, so they promptly got in their car and drove off to the nearest petrol station to fill up. It was an inconvenience, but my friend was happy that they had got one over the petrol station.
This is not an uncommon event, but here’s why I don’t understand it:
- Firstly, if you assume that you only buy 40 litres of petrol (remember, your tank isn’t empty), you’re only saving R12 (40c x 30).
- Secondly, and more importantly, if my friend was at home at 9pm at night and I offered them R12 to drive to the petrol station and back, they probably wouldn’t do it because R12 is not worth the hassle.
And that’s where the irrationality comes in. We should be indifferent between saving R12 by buying petrol, or being given R12 for going through the hassle involved in filling up. But for some reason, a lot of us are not. A large number of people will happily go through the inconvenience of filling up now, but they wouldn’t go through the same hassle if you paid them the same amount of money.
This post was just intended to be a light-hearted, topical piece around consumer irrationality. But, this subject is more important than you might think. Through designing insurance products, I have learnt that policyholders and financial advisers often make irrational decisions around their risk cover. I won’t try to explain why this is so, but I will remind you that when making financial decisions, it is important to to take emotion out of your decision making process as far as possible, as well as constantly making sure you are able to justify your decisions to yourself.
And if you are going to rush off to the petrol station tonight, at least make it worth it and get an ice cream at the same time.