Many people - including Consumer Reports tell one to use regular fuel to save money.

The will not, however answer my question as to how a car compensates for low octane.

I have read that the first action by the computer in a Volvo is to add extra fuel to cool the cylinders to stop the knock.

You see, if the engine is knocking, the cylinder(s) are firing before the ignition system operates, retarding the ignition will not stop the knock.

Can anyone direct me to a good technical explanation of how this system works?

At today's prices, 10 cents more a gallon is worth it to pick up 1/2 an MPG.

Milanomike is quite correct. The knock sensors can hear the ping before you ever will and retard timing. The engine management will also add fuel to help 'cool' the combustion chamber, both will reduce your MPG.

Volvo manuals state that at a minimum, 87 octane will work. That is true if the outside temps are coolish and the driver doesn't try to go over 4000 rpm. If you own a turbo, light or high pressure, the compression ratio goes up quite a bit and can result in knock/ping easily.

I suggest using at least 89 octane, mid-grade, for two reasons. Most 'regular' gasolines do not contain cleaners allowing for carbon clean up of valves and piston crowns. 87 octane also burns hotter than higher octanes which could result in burned headgaskets (my theory only).

If you are a lead foot, like me, or like to spool up the turbo, then 89 or 91 octane makes sense. I found that the HPT engines do not like to go over 5000 rpm on 89 octane, period.

Interstate driving seldom needs 91 octane as the engine is normally around 3000 rpm without a load. Of course, pulling a trailer with a full car and going up hill will cause ping and mess up your mileage, but who knows what your mpg should be with a 3000 lb trailer and 4 adults in the car (slightly over the maximum!).

I am sure you could Google how a knock sensor works and what it does when it detects knock in a few minutes. But at a simple level, the knock sensor will sense knock or pinging long before you hear it. When it does it backs off on ignition timing/advance which reduces power and cuts into fuel economy. You can run a simply test using regular and premium to see what the fuel economy difference might be for what it's worth. You may or may not feel the power difference depending on how you drive. Just my couple of cents worth of thought.