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Consumer Inattention, Heuristic Thinking andthe Role of Energy Labels
IAEE 2017
Mark Andor, Andreas Gerster, Stephan Sommer
August 24th, 2016
2Consumer Inattention, Heuristic Thinking and the Role of Energy Labels
In brief
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Energy labels are an important policy instrument to increase investment in energy efficient appliances
Motivation
Methodology
Stated-choice experiment with randomized information treatments
Contribution
How can energy labels with efficiency classes be made more effective?
Extend the conceptual model of energy efficiency investment decisions
Investigate whether households have a willingness to pay for efficiency class differences per se
Analyze the effects of
enhancing the salience of energy costs as well as
increasing the number of stimuli competing for attention
Investigate the channels through which the treatments operate
• Behavioral economics suggest that consumers might be inattentive to energy costs in purchase decisions of appliances• Consumers are inattentive to opaque value components (e.g. Chetty et al.
2009, AER)
• Consumers use decision heuristics when processing information (e.g. Lacetera et al. 2012, AER)
• „Energy Efficiency Gap“: low tendency of consumers to invest intocost-effective energy efficiency technologies
• To bridge this gap, energy labels have been introduced worldwide
• Literature is scarce and focused on the US energy labels (Newell and Siikamäki, 2014, JAERE; Houde, 2014, NBER)
3Consumer Inattention, Heuristic Thinking and the Role of Energy Labels
Motivation
Introduction
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4Consumer Inattention, Heuristic Thinking and the Role of Energy Labels
Overview of the experimental design
Experimental Design
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• Stated-choice experiment with four randomly ordered binary choice sets
• Randomized information treatments: a control group and two treatmentgroups
Experimental Groups(Randomized)
Control group
Treatment group I
Treatment group II
Ch
oic
e S
ets
(Ran
do
miz
ed
)
M1 M1 M1
M2 M2 M2
S1 S1 S1
S2 S2 S2
5Consumer Inattention, Heuristic Thinking and the Role of Energy Labels
Choice Sets
Experimental Design
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• Participants repeatedly chose between two refrigerators that differ in purchasing price and energy use.
• Example: Choice Set M1 in the Control Group
• Control group: Simplified version of the EU label
• Treatment group I: Provision of annual cost information
• Treatment group II: Additional non-energy related product attributes
6Consumer Inattention, Heuristic Thinking and the Role of Energy Labels
Treatments
Experimental Design
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Treatment group I
Annual Operating Cost Condition
Treatment group II
Competing Stimuli Condition
Control group
• Stated-choice experiment using the household panel of the survey institute forsa, which is representative for Germany
• Random assignment of experimental groups and random sequence ofchoice sets
• We estimate a linear probability model, which gives a consistent estimatorfor the average treatment effect (Angrist and Pischke, 2009)• As a robustness check, we estimate logit and probit models: the results are the same
• Dependent variable: 1 if energy efficient appliance is chosen
7Consumer Inattention, Heuristic Thinking and the Role of Energy Labels
Empirical Strategy
Results
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8Consumer Inattention, Heuristic Thinking and the Role of Energy Labels
Hypotheses
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• Heuristics Hypothesis: households value efficiency class differences per se, i.e. independent of energy consumption
Choice set ∆𝐾 ∆𝑘𝑊ℎ ≙ ∆𝑃𝑉𝑂 ∆𝐸𝐶
M1 70 40 Yes
M2 70 60 Yes
S1 30 1 Yes
S2 70 40 No
Heuristics Hypothesis
• 65% of the respondents are willing to pay at least 30 Euro for a higherefficiency class, although electricity consumption is only marginally lower(1 kWh)
• Individuals with high information cost resort to the heuristic more often
9Consumer Inattention, Heuristic Thinking and the Role of Energy Labels
Heuristics Hypothesis
Results
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Choice set S1
Constant 0.649** (0.007) 0.373** (0.035)
College degree -0.046** (0.020)
Uninformed 0.056** (0.017)
Additional control variables
Number of observations 4,596 3,886Note: Standard errors are in parentheses. **,* denote statistical significance at the 1 % and 5 % level, respectively .
10Consumer Inattention, Heuristic Thinking and the Role of Energy Labels
Hypotheses
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Cost Hypothesis: Enhancing the salience of operating cost raises the
probability of choosing the more energy efficient appliance
Stimuli Hypothesis: Increasing the number of competing stimuli, i.e. further product characteristics that are unrelated to energy use, leads to less frequent choices of the energy efficient appliance
Choice set ∆𝐾 ∆𝑘𝑊ℎ ≙ ∆𝑃𝑉𝑂 ∆𝐸𝐶
M1 70 40 Yes
M2 70 60 Yes
S1 30 1 Yes
S2 70 40 No
Cost and Stimuli Hypotheses
• Providing cost information increases the probability to choose the moreenergy efficient appliance by 3.2%
• Increasing the number of stimuli decreases the choice probabilities by2.2%
11Consumer Inattention, Heuristic Thinking and the Role of Energy Labels
Cost and Stimuli Hypotheses
Results
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Choice sets M1 and M2
Constant 0.861** (0.007)
Treatment I: Annual Operating Cost 0.032** (0.010)
Treatment II: Competing Stimuli -0.022* (0.011)
Number of observations 9,193
Note: Standard errors are in parentheses (for M1 and M2 clustered at the individual level). **,* denote statisticalsignificance at the 1% and 5% level, respectively.
• A large share of respondents has a WTP for efficiency class differences => indicator of existence for decision heuristics
• Providing cost information and reducing the number of competing stimuliincreases the choice of energy efficient appliances in market settings
• When the energy label contains energy efficiency classes, the energy costinformation works by two channels:
• It increases the attention to operating cost
• And decreases the valuation of efficiency class differences
Based on the results, we expect positive welfare effects of adding estimatedannual energy costs on the EU energy label
12Consumer Inattention, Heuristic Thinking and the Role of Energy Labels
Conclusions
Conclusion
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139/5/2017Consumer Inattention, Heuristic Thinking and the Role of Energy Labels
Paper: USAEE Working Paper No. 16-287.
Further related studies:
› Andor/Fels: Behavioral Economics and Energy Conservation – A Systematic Review of Non-price Interventions and their Causal Effects (SFB 823 Discussion Paper #14)
› Andor/Gerster/Götte: The Role of Social Information, Incentives and Habits in Household Electricity Consumption (End of 2017)
› Andor/Gerster/Peters: Information Provision and Residential Energy Consumption (Autumn of 2017)
› Andor/Gerster/Peters/Schmidt: Social Norms and Energy Conservation beyond the US (Working Paper, next week)
Thank you for your attention!Dr. Mark Andor
E-Mail: [email protected]
Allcott, H., Taubinsky, D., 2015. Evaluating behaviorally motivated policy: Experimental evidence from the lightbulb market. American Economic Review 105 (8), 2501-2538.
Chetty, R., Looney, A., Kroft, K., 2009. Salience and taxation: Theory and evidence. The American Economic Review 99 (4), 1145-1177
DellaVigna, S., 2009. Psychology and economics: Evidence from the field. Journal of Economic Literature 47 (2), 315-372.
Gerarden, T., Newell, R. G., Stavins, R. N., et al., 2015. Deconstructing the energy-efficiency gap: Conceptual frameworks and evidence. American Economic Review 105 (5), 183-186.
Houde, S., 2014. How consumers respond to environmental certification and the value of energy information. NBER working paper No. 20019
Lacetera, N., Pope, D. G., Sydnor, 2012. Heuristic Thinking and Limited Attention in the Car Market. American Economic Review 102(5): 2206-2236
Newell, R. G., Siikamäki, J. V., 2014. Nudging energy efficiency behavior: The role of information labels. Journal of the Association of Environmental and Resource Economists 1 (4), 555-598.
149/5/2017Consumer Inattention, Heuristic Thinking and the Role of Energy Labels
Literature
15Consumer Inattention, Heuristic Thinking and the Role of Energy Labels
Choice Sets
3. Conceptual Model
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Choice set
Alter-native
Purchaseprice
Electricityconsump-
tion
Efficiencylabel
Opera-ting cost
Coolingcompart-
ment
Freezingcompart-
ment
Noise level
Picture
I A 239 80 A+++ 22 105 14 37 D
B 169 120 A++ 34 106 15 39 C
II A 449 120 A++ 34 104 14 39 C
B 379 180 A+ 50 105 13 38 D
III A 309 160 A+ 45 104 15 37 B
B 239 200 A+ 56 106 14 38 A
IV A 289 153 A++ 43 106 15 38 C
B 259 154 A+ 43 104 14 39 A
In C
In TC
In TN
• Newell and Siikamäki (2014, JAERE): The inclusion of annual electricity cost and energy efficiency ratings lead to a higher WTP for energy efficient heat pumps
• Houde (2014, NBER): three types of consumers; those that rely on the label, those that rely on electricity cost, those that do not consider energy efficiency information at all
16Consumer Inattention, Heuristic Thinking and the Role of Energy Labels
Literature has focused on the US energy labels
Introduction
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