Trains Can Be Cheap: Apply Some Behavioural Economics And Put Your Heuristics On Hold

The previous post showed how you could travel 588 miles on British trains for around £37 a head, compared to the 45p a mile cost of using your own car – which comes to £264.60 for the same mileage. People normally say that a train might be cheaper for one or two people, but not for multiple travellers. For this journey, you’d have needed seven people for the car to be cheaper. You might argue (wrongly) that the relevant costs are just the fuel for the journey: assuming around 35 mpg, that would be about 16.8 gallons, or 76 litres: £99 at £1.30 a litre. So even paying just for fuel, you’d need more than three people travelling to make going by car cheaper, not to mention the hassle of driving for over 5 hours. So how come mainstream thinking is that trains are expensive and unaffordable, while the truth is a lot messier: sometimes they are, and sometimes they aren’t? Behavioural economics can shed some light.
When rail fares go up - like the recent announcement - there’s normally massive media coverage. So the idea “trains are expensive” becomes highly salient and very vivid. Here’s another example, from the Daily Telegraph, which points out that planes are cheaper than trains on half of the surveyed routes in the UK - that’s pretty vivid. (although also in the article, much less prominent, is the following quote, “Despite soaring fuel prices, travelling by car proved cheaper than taking the train on 16 of the 50 journeys.” Which is a great example of another behavioural economics technique, notably framing - because what the data actually says is that train is cheaper than car for 34 out of 50 journeys. Or put it another way, train is cheaper than car on 68% of the journeys in the survey).
So, thinking about our own journeys, what we mostly don’t do is analyse the comparative costs of using different modes for a particular trip. Instead, those vivid and salient examples of expensive train travel pop up because they are readily available to our memory, hence the “availability heuristic:” a rule of thumb we use when faced with a decision.
As Daniel Kahneman, the godfather of behavioural economics, shows in his book Thinking, Fast and Slow, when we are asked a difficult question we mostly don’t analyse the data using the rational part of the brain. Instead, we often allow our instinctive "gut reaction" to answer a related, simpler question. In this case we might just skip the difficult stuff and ask ourself “why don’t I just use the car?” Understandable when the alternative is going through the complicated and energy-sapping analysis of rail fare options (MoneySavingExpert can help out here). Far easier to let our availability heuristic do the mental shortcut and conclude that train travel is expensive, so we’ll go by car. Even more likely if high-profile media coverage triggers an "availability cascade", a self-sustaining chain of events which leads to the overestimation of probabilities – which in this case would be “going by train is more expensive.”
So here’s

a behavioural economics guide to cheaper travel:

First, put your heuristics on hold – especially your availability heuristic;
Second, make sure you ask the right question (eg: what is the cheapest and most convenient way to accomplish this journey?);
Third, ensure that you answer the same question, rather substitute an easier one that springs to mind.
You might be surprised by the answer…..

Petrol Panic, Pump Rage and Pastygate: Economics and Behavioural Economics

A week, according to former British Prime Minister Harold Wilson, is a long time in politics. And those queues on filling station forecourts across the UK as a fuel crisis loomed now look so last week. But it ain’t over till it’s over, and this one could run and run if the fuel tanker drivers go ahead with their strike. So, a couple of questions about what happened and why: how to avoid it, and how to explain it.

1. How To Avoid It

Give up your car.
2. How to Explain It: Economics and Behavioural Economics

A BBC commentator said that public response to the potential fuel shortages was a classic example of game theory: everything is ok until a few people form a queue. Then others join in and, before you know it, there’s a crisis. It’s debatable whether this is game theory: it might be better to start with economics - the most basic supply and demand analysis - and then add the psychology, behavioural economics. Starting with supply: there’s the long run industry trend which has seen concentration of fuel retailing into the hands of the supermarkets and the oil majors as thousands of independent petrol stations have closed in recent years - reducing diversity of supply, reducing resilience and redundancy, and maximising the prospect of supply side bottlenecks (something to think about when filling the tank at a supermarket). And there’s the short term supply side: tanker drivers, whose job it is to supply this depleted number of filling stations, start to consider strike action. Suddenly, those supply side bottlenecks look a lot more risky.
And then there’s the demand side. Energy minister Ed Davey has said that, on a normal day, of the 31 million cars in the UK, about a third of tanks have full tanks, whilst the average tank is a third full. So people "just need to do the sensible thing... get a full tank of petrol, not a half-tank." When one minister starts talking about topping up the tank at every opportunity and another advises keeping jerry cans of spare petrol in the garage, the psychology is bound to shift: suddenly, there’s a new “normal.” How does behavioural economics help with explaining these demand side phenomena? Start with media images of long queues at the petrol pumps, and other images like these pictures. A reminder of what could happen. Loss aversion will kick in: even if it’s a potential, future loss, we want to minimise the chances of it happening. And before you can say “fill the tank,” the combination of these vivid images, salient to motorists, have triggered an availability cascade – defined by Daniel Kahneman in Thinking Fast and Slow as “a self sustaining chain of events which may start from media reports of a relatively minor event and lead up to public panic and large scale government action.” At this point, the story changes – there is going to be a fuel shortage and we’d better stock up. More and more drivers take action, feeding a new norm. The herd changes direction, hey presto, queues at filling stations, and say hello to a self-fulfilling prophecy. It there wasn’t a crisis to start with, there is now.
There has been a lot of coverage of the current UK government’s embrace of new methods of behaviour change, as exemplified by the Behavioural Insight Team, aka The Nudge Unit, in Number 10 Downing Street. Looking at this episode, which isn’t over yet, it looks more like low politics than high insight. But, from the government’s perspective, it has helped push higher taxes on grannies – and pasties - off the front pages.