Mar 6, 2010
Behavioral Economics and Energy
Hunt Alcott, a behavioral economist with MIT, talks about improving consumer decision making when it comes to making better choices regarding energy usage. I thought it was pretty interesting that he cites Robert Cialdini’s work in psychology. As you know, Cialdini’s book is one of Charlie Munger’s favorites:
Q. To what extent will consumers make different choices if they simply have the facts about energy explained to them in a clear manner?
A. The effect of clearer information is an empirical question that often has surprising answers. One example of this is from OPOWER, a company that our research group interacts with a lot. OPOWER sends home energy use reports to households that compare those households to their neighbors and give energy conservation tips. The information in these reports is very similar to what’s already on a utility bill: How much did you spend this month, how much did you spend this year, here’s where you can get compact fluorescent lightbulbs. But something about the way they’re presenting it — presumably the way they use comparisons to neighbors — seems to be very powerful. I’m not sure it would have been obvious to any of us 10 years ago or three years ago that this program would have large effects in the real world.
There was an academic study by psychologist Bob Cialdini and co-authors that helped provide the proof-of-concept for the OPOWER program. In this study, the researchers left door-hangers at a group of households in California. Some of the door-hangers said, “Save money by saving energy,” some of them said, “Save the environment,” and some said, “Here’s how much your neighbors are using.” And the ones that said, “Here’s how much your neighbors are using” had a much stronger impact on energy consumption. In the last couple of years that study in particular has had a lot of influence.
Q. Okay, so why is it that referring to neighbors is effective?
A. Psychologists have been great at documenting that if you tell people what the social norm is, people will converge to the social norm. In my mind there are two leading economic hypotheses for why this works in energy consumption. One is called “conditional cooperation.” People may be altruistic, and they view conserving energy as contributing to the public good of reducing climate change. People are typically more willing to contribute to a public good if they are informed that other people are contributing more than they are.
The other explanation is just social inference. It could be that I couldn’t care less about the environment, but I do want to save money. And if you tell me that I’m using twice as much energy as my neighbor, that lets me know that maybe I’ve been leaving a window open or that my furnace is inefficient. So that’s purely a self-interested, informational story. Testing between these two explanations is one of the research questions we’re interested in.
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