

How to find cheap gas using game theory - strategy
http://mindyourdecisions.com/blog/2010/02/09/how-to-find-cheap-gas-using-game-theory/

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jonp
Help my understanding: is this really an example of game theory?

I thought that game theory was about making decisions in which your success
depends on the choices of others.

In the original secretary/dowry problem the values of your choices are random.
In this case the gas prices aren't random but the strategy doesn't depend on
considering the choices made by the gas station owners in setting those
prices.

So while it's a nice solution (and one I've used myself when looking for an
apartment) it doesn't seem to me to be an example of game theory.

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notauser
Not to mention that gas stations in a small region (especially a small town)
are playing their _own_ game which will probably tend to equalize prices
between the stations.

I haven't seem gas stations with a 60c/gal(!) difference that are a reasonable
distance apart.

Between Boston and Lexington? Sure it might be 60c cheaper, but that's almost
20 miles which would wipe out your savings and it has more to with city vs
country which is predictable and doesn't require a game theory solution if you
happen to be going that way.

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hristov
This is of course the well known secretary problem. Of course to equate this
with the secretary problem, one must assume a random distribution of gas
prices.

But I think you can do better in real life. You can find a gas station that is
more likely than average to have lower prices.

Just look for the station that would seem to be in the worst competitive
position. I.e., the one that is inconveniently placed, that is away from the
highway, that has a small sign, or that has a less famous logo. It will
probably sell you cheaper gas.

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d0mine
Such station should probably have _higher_ prices to survive.

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three14
The out-of-the-way station should have cheaper real estate costs, and should
have cheaper prices to lure repeat customers to travel further (more customers
x cheaper price can be more than fewer x more expensive).

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philwelch
Not sure if this is generally true, but in one freeway town I often pass
through, you come off the freeway onto a main drag with lots of gas stations.
Since we drive on the right side of the road, the gas stations on the left
side of the road have marginally lower prices than the gas stations on the
right side--presumably a premium to cover the inconvenience of making a left
turn on a usually busy street!

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prosa
Neat trick! Unfortunately, in the U.S. it's less interesting -- by the time
you've gotten off the highway you are usually committed to the 2 or 3 signs
within line of sight of the offramp.

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keefe
lol, so... It's not generally a good idea to cut it this close in the US. When
I drove out to cali, my buddy and decided to drive it at night to avoid
traffic - this is KY to CA. So, we're clear into indiana somewhere at around
11pm and we get to about 10-15% of a tank of gas, decide to stop... pull off
at the next gas sign, oh hey - it's closed??? That's interested, let's go to
the next exit... 2 exits later the needle is on E and we finally get to a city
with an open station. From that point on, we always filled it up at 25-33% - a
fact which was crucially important in the desert and mountains.

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prosa
That's definitely a risk when you get out of the city areas. Unfortunately,
when minimizing stops, the greedy algorithm is the ideal solution -- it's
always better to risk it.

(In graph theory, nodes don't close after midnight.)

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cubicle67
In Western Australia, we have a state government run website,
<http://www.fuelwatch.wa.gov.au/> , that lists almost all WA servo prices
across all fuel types for both today and tomorrow. Prices are cents per litre.

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JacobAldridge
So, assuming all 5 retailers act rationally, and that they assume all their
customers and competitors act rationally.

Station #1 knows most of its customers won't be comparing (don't care or
running low). So they can jack prices up a little more.

Station #2 knows that the only comparison they can be sure ALL their customers
make is with Station #1, which will be jacked up, so they can increase their
margins a little (above avg, below #1).

#3, #4 and #5 could follow the same logic, except for this. Station #5 knows
many of its customers won't compare either. They're the last option without
turning around, and many comparison shoppers won't turn around for a few lousy
cents / gallon. So they can increase their margin a little.

Which leaves Station #3 wanting to look reasonable compared to #1 & #2, and
able to survive a comparison with at least #4. And Station #4 knows they will
be a good comparison with #5 but need to compete with #3 and so will probably
be at or about the same level as #3.

In other words, #1 will be most expensive. #2 & #5 will have good cause for
being a little extra. And #3 & #4 will both be subject to the largest
competitive forces and will likely have similar, lowest prices.

Shame the initial assumption I made was completely crap.

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dagw
Given that people can drive down the road in two directions, station #1 is
also #5 and #2 is also #4. This changes your analysis slightly, but the result
remains that you should go to station #3.

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JacobAldridge
And that the initial assumptions were crap.

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vaksel
If I can plan it...I usually fill up a gas station a few miles away...why?
Because there are 3 gas stations on that one intersection..and their prices
are usually 20-30 cents cheaper than other gas stations in the area.

And if I can't plan it...I just fill up whenever, since the difference between
the super duper cheap gas station and arm and a leg gas station...is pretty
small.

If you have a 10 gallon gas tank, and the difference is 50 cents....you'll
only be overpaying $5 for a tank of gas.

And since the difference is usually much smaller...you'll usually just pay 1-2
bucks more to fill up now...instead of trying to find a cheaper station.

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samratjp
This is an amusing post. For me, buying gas is just as similar to stocks. The
trick is to decide whether to fill 'er up full or not. Almost always, a full
tank is a bad bet unless if you know from experience that it's the cheapest
station in the area.

I say stocks because the gas in your tank is the value you bought it for that
you could've gotten cheaply. I mean if you know the gas price is going to
increase for sure (such as during a long weekend), then yes I will fill my
tank please.

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rflrob
On long trips, especially coming _home_ from long trips, I'm usually in at
least a little bit of a hurry to get there and be done driving. It's therefore
worth $1.50 (assuming I pay $.10 per gallon more than is necessary for my 15
gallon tank) to me to only have to fill up once. In practice, I've found the
price aren't usually even that much, so the time saved is that much better of
a deal.

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samratjp
Well I agree with the time saved part, but in the long run the $1.50s add up
to something of significance.

But, my point is that when gas is expensive and you're in dire need of it,
fill it up as much as is necessary until the next favorable stop.

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reitzensteinm
But the time saved adds up at the same pace, as well. If spending $1.50 to
save 10 minutes is worth it in each invidual case, in aggregate it's worth it
as well.

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ulugbek
Problem rises when gas station operators, assuming they are rational, know
that customers are using this strategy. In this case, they will set a price
that will be function of how far and frequent other gas stations are located.
The favorable outcome for customer is random chance here, somebody with less
gas who would have used the same strategy would end up at more expensive
station.

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incosta
Since you're (presumably) driving off the highway into an unknown town, my
guess is that the first station or two will have more expensive gas, because
these stations know there are people coming the same way from the highway who
need gas asap (and don't mind paying a premium price). This is confirmed by
the example in your post.

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duck
<http://gasbuddy.com/>

