Predicting Individual Fuel Economy 2011-01-0618

To make informed decisions about travel and vehicle purchase, consumers need unbiased and accurate information of the fuel economy they will actually obtain. In the past, the EPA fuel economy estimates based on its 1984 rules have been widely criticized for overestimating on-road fuel economy. In 2008, EPA adopted a new estimation rule. This study compares the usefulness of the EPA's 1984 and 2008 estimates based on their prediction bias and accuracy and attempts to improve the prediction of on-road fuel economies based on consumer and vehicle attributes. We examine the usefulness of the EPA fuel economy estimates using a large sample of self-reported on-road fuel economy data and develop an Individualized Model for more accurately predicting an individual driver's on-road fuel economy based on easily determined vehicle and driver attributes. Accuracy rather than bias appears to have limited the usefulness of the EPA 1984 estimates in predicting on-road MPG. The EPA 2008 estimates appear to be equally inaccurate and substantially more biased relative to the self-reported data. Furthermore, the 2008 estimates exhibit an underestimation bias that increases with increasing fuel economy, suggesting that the new numbers will tend to underestimate the real-world benefits of fuel economy and emissions standards. By including several simple driver and vehicle attributes, the Individualized Model reduces the unexplained variance by over 55% and the standard error by 33% based on an independent test sample. The additional explanatory variables can be easily provided by the individuals.