Buying a Fuel Efficient Car: A Cost-Benefit Analysis
By Kevin
s I indicated below, I'm considering replacing my 2000 Hyundai Elantra.
"Hazlitt" has been extremely reliable, and has only 48,000 miles, but I place a premium on a car not breaking down at inconvenient times -- like when my wife is driving our son across town. This has not yet happened, but I increasingly suspect, based solely on the age of the car, that it will.
My cost analysis training leads me to believe that if I do the math, I can come to a rational decision. Let's actually try to do the math, putting in subjective low, medium, and high values when good data are not available. In the end, we will have three estimates, a low end, a "best guess", and a high end estimate.
Model and Data
et's say I value not breaking down at a cost of $2000 (which includes the cost of repairs). What is the liklihood that in the next 5 years my 2000 Elantra will break down on the road? I haven't a clue to the real probability of BD(2000), actually. What is the liklihood that in the next 5 years a 2005 Elantra will break down on the road? No clue about BD(2005) either. Hence, my rough expected benefit from greater reliability is $2000*[BD(2005)-BD(2000)]. How in hell am I to determine this?
But I also want a car that is fuel efficient. My automatic Elantra has been averaging 30 MPG in mixed use. What are my automatic-transmission alternatives?
- Honda Civic HX
- Honda Civic Hybrid
- Honda Insight
- Hyundai Elantra (I don't fit into the front seat of the Accent), the
- Toyota Prius
- Scion Xa (The Xb is ruled out on asthetic grounds
Conclusion
on't bother with Cost-Benefit Analysis if your gut tells you that you really want something, and your wallet says that it is not a really big deal. If you're honest with probability within a CBA framework, it is unlikely that you will come to any clean, simple, high-probability, rational conclusion about which option is better.