"Consider the case of two car owners: One is looking to switch their SUV averaging 12 miles per gallon (MPG) to an SUV averaging 14.
The other is looking to switch their compact car averaging 30 MPG to a newer model averaging 40.
Both individuals drive 10,000 miles per year.
Who of these two people would save the most gasoline and money?
Duke University Professors Richard P. Larrick and Jack B. Soll originally posed this scenario back in 2008 in an article published to the journal Science.
To many people, the answer might seem obvious: the second individual would save the most, as they are boosting their MPG by 33% (vs. 16.7%) and will be able to travel 10 miles more per gallon (vs. just two).
But this is completely wrong, and it just takes some quick math to figure out why.
...As Nobel Prize-winning behavioral economist Daniel Kahneman noted in his book Thinking, Fast and Slow, "The five-year interval between the publication of 'The MPG Illusion' and the implementation of a partial correction is probably a speed record for a signification application of psychological science to public policy."
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