Anderson, Soren, Kellogg, Ryan and Sallee, James “What Do Consumers Believe About Future Gasoline Prices?” (Revised September 2012) (Revised version published in Journal of Environmental Economics and Management, 66 (3): 383-403, November 2013) | WP-215
A full understanding of how gasoline prices affect consumer behavior frequently requires information on how consumers forecast future gasoline prices. We provide the first evidence on the nature of these forecasts by analyzing two decades of data on gasoline price expectations from the Michigan Survey of Consumers. We find that average consumer beliefs are typically indistinguishable from a no-change forecast, justifying an assumption commonly made in the literature on consumer valuation of energy efficiency. We also provide evidence on circumstances in which consumer forecasts are likely to deviate from no-change and on significant cross-consumer forecast heterogeneity.