Hurricane Ike and Fear
September 13, 2008 – 9:36 am
I live in Texas, and Hurricane Ike is on it’s way! I’ve experienced hurricanes before, and I’ve lived through several mandatory evacuations before when I lived on Miami Beach (although I don’t have to evacuate for Ike).
What surprises me the most with Ike, however, is the worry everyone has over gas prices. I watched news reports throughout the day about people rushing to fill up their gas tanks because they were afraid gas prices are going to jump (and they may). These ‘rushes’ also occurred in Florida and North Carolina, thousands of miles from Ike due to the fear that refineries in TX would be destroyed.
After seeing how people rushed to the gas stations* for fear of an increase in gas prices, I could more easily understand why there was a rush on banks back during the great depression. Fear can easily take hold of everyone, including me, and it’s hard to shake the feeling once you have it.
*note that I don’t live in an area of Texas that is expected to be hit hard by the storm, so people aren’t filling up their tanks in order to flee from the storm.
Let’s think through this gas debacle a bit. If gas jumped $1.00 a gallon, it would still only cost people an extra $12 to $20 to fill up a completely empty gas tank. I understand that $20 is a big increase for a single tank of gas, but that’s a persons MAXIMUM exposure. You can’t (easily) stockpile gasoline, so if prices do rise every single tank after the first one will have to be purchased at market prices. Therefore a lot of people are filling up their tanks now because of fear of having to spend $20.
I don’t know if gas prices are going to rise, fall, or take the path of a roller coaster in the near future. I do know that fear causes irrational behavior. Even if you think behavior is irrational, the fact that everyone else is doing something often causes others to join in. Stock market manias are a good example. It may be irrational to sell off your holding in a bear market. If a bunch of institutions do it though, then everyone will be hurt even though it may not be rational.
Of course the flip side of this is that filling up your tank is easy, so why not fill up now and hedge your bets? So what would you do? Fill up or sit back and spend your time thinking about how sad it is that fear over $20 has so many people concerned? I figured I’d do both.
Image Credit: gisuser
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6 Responses to “Hurricane Ike and Fear”
If you want to understand how the masses can behave in an irrational way you should read
Manias, Panics, and Crashes: A History of Financial Crises. It is called herd mentality.
By The World's Worst Stock Picker on Sep 13, 2008
Having grown up in the 70’s, I think you are missing the point. You are assuming that there will be gas to buy. If the storm damage is bad enough, a large portion of the refining capabilities for the US – the whole US – would be affected. There is a very real possibility that gas supplies could be disrupted to the point where no matter the price, there just is no gas available.
By Eric on Sep 13, 2008
Good point Eric. Definitely something worth considering.
By todd on Sep 14, 2008
Also, the gas pumps are run on electricity and if the electricity is out for weeks, where would people get gas. I don’t think they need to RUSH but just be aware. I live in Florida and if you are sensible, everything works out well. Not much you can do about it anyway except heed the wrnings and be prepared.
By bobbette on Sep 16, 2008