IDEAS home Printed from https://ideas.repec.org/a/eee/jeeman/v109y2021ics0095069621000723.html
   My bibliography  Save this article

On the role of present bias and biased price beliefs in household energy consumption

Author

Listed:
  • Werthschulte, Madeline
  • Löschel, Andreas

Abstract

The intermittency of energy billing may give rise to different biases or misperceptions, such that household energy demand deviates from its true optimum. This study investigates such deviations by linking variation in present-biased preferences and energy price beliefs to variation in energy consumed. Using both a survey and incentivized experiments, we gather measures of present bias as well as price beliefs, and observe participants’ true electricity consumption. Our main finding is that participants with present bias are predicted to consume on average 9 to 10 percent more electricity than participants with time-consistent discounting. Our results further suggest that neither the true marginal electricity price nor the perceived marginal electricity price can predict electricity consumption. These findings raise doubt as to the effectiveness of classic price-based policies in reducing household energy consumption.

Suggested Citation

  • Werthschulte, Madeline & Löschel, Andreas, 2021. "On the role of present bias and biased price beliefs in household energy consumption," Journal of Environmental Economics and Management, Elsevier, vol. 109(C).
    • Handle: RePEc:eee:jeeman:v:109:y:2021:i:c:s0095069621000723
    DOI: 10.1016/j.jeem.2021.102500
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0095069621000723
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.jeem.2021.102500?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Kenneth Gillingham & Karen Palmer, 2014. "Bridging the Energy Efficiency Gap: Policy Insights from Economic Theory and Empirical Evidence," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 8(1), pages 18-38, January.
    2. Taisuke Imai & Tom A Rutter & Colin F Camerer, 2021. "Meta-Analysis of Present-Bias Estimation using Convex Time Budgets," The Economic Journal, Royal Economic Society, vol. 131(636), pages 1788-1814.
    3. Fischbacher, Urs & Schudy, Simeon & Teyssier, Sabrina, 2021. "Heterogeneous preferences and investments in energy saving measures," Resource and Energy Economics, Elsevier, vol. 63(C).
    4. Takeuchi, Kan, 2011. "Non-parametric test of time consistency: Present bias and future bias," Games and Economic Behavior, Elsevier, vol. 71(2), pages 456-478, March.
    5. Sebastian Schneider & Matthias Sutter, 2020. "Higher Order Risk Preferences: New Experimental Measures, Determinants and Field Behavior," Discussion Paper Series of the Max Planck Institute for Research on Collective Goods 2020_22, Max Planck Institute for Research on Collective Goods.
    6. Blasch, Julia & Boogen, Nina & Filippini, Massimo & Kumar, Nilkanth, 2017. "Explaining electricity demand and the role of energy and investment literacy on end-use efficiency of Swiss households," Energy Economics, Elsevier, vol. 68(S1), pages 89-102.
    7. Richard G. Newell & Juha Siikamäki, 2015. "Individual Time Preferences and Energy Efficiency," American Economic Review, American Economic Association, vol. 105(5), pages 196-200, May.
    8. Gilbert, Ben & Graff Zivin, Joshua, 2014. "Dynamic salience with intermittent billing: Evidence from smart electricity meters," Journal of Economic Behavior & Organization, Elsevier, vol. 107(PA), pages 176-190.
    9. Armin Falk & Anke Becker & Thomas Dohmen & Benjamin Enke & David Huffman & Uwe Sunde, 2018. "Global Evidence on Economic Preferences," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 133(4), pages 1645-1692.
    10. Heutel, Garth, 2019. "Prospect theory and energy efficiency," Journal of Environmental Economics and Management, Elsevier, vol. 96(C), pages 236-254.
    11. Armin Falk & James J. Heckman, 2009. "Lab Experiments are a Major Source of Knowledge in the Social Sciences," Working Papers 200935, Geary Institute, University College Dublin.
    12. Armin Falk & Anke Becker & Thomas Dohmen & David Huffman & Uwe Sunde, 2023. "The Preference Survey Module: A Validated Instrument for Measuring Risk, Time, and Social Preferences," Management Science, INFORMS, vol. 69(4), pages 1935-1950, April.
    13. Glenn W. Harrison & John A. List, 2004. "Field Experiments," Journal of Economic Literature, American Economic Association, vol. 42(4), pages 1009-1055, December.
    14. Qiu, Yueming & Colson, Gregory & Grebitus, Carola, 2014. "Risk preferences and purchase of energy-efficient technologies in the residential sector," Ecological Economics, Elsevier, vol. 107(C), pages 216-229.
    15. Lynham, John & Nitta, Kohei & Saijo, Tatsuyoshi & Tarui, Nori, 2016. "Why does real-time information reduce energy consumption?," Energy Economics, Elsevier, vol. 54(C), pages 173-181.
    16. David Bradford & Charles Courtemanche & Garth Heutel & Patrick McAlvanah & Christopher Ruhm, 2017. "Time preferences and consumer behavior," Journal of Risk and Uncertainty, Springer, vol. 55(2), pages 119-145, December.
    17. Kelsey Jack & Grant Smith, 2020. "Charging Ahead: Prepaid Metering, Electricity Use, and Utility Revenue," American Economic Journal: Applied Economics, American Economic Association, vol. 12(2), pages 134-168, April.
    18. Stephan Meier & Charles Sprenger, 2010. "Present-Biased Preferences and Credit Card Borrowing," American Economic Journal: Applied Economics, American Economic Association, vol. 2(1), pages 193-210, January.
    19. Steffen Andersen & Glenn W. Harrison & Morten I. Lau & E. Elisabet Rutström, 2008. "Eliciting Risk and Time Preferences," Econometrica, Econometric Society, vol. 76(3), pages 583-618, May.
    20. Brent, Daniel A. & Ward, Michael B., 2019. "Price perceptions in water demand," Journal of Environmental Economics and Management, Elsevier, vol. 98(C).
    21. Mohammed Abdellaoui & Aurelien Baillon & Laetitia Placido & Peter P. Wakker, 2011. "The Rich Domain of Uncertainty: Source Functions and Their Experimental Implementation," American Economic Review, American Economic Association, vol. 101(2), pages 695-723, April.
    22. Mohammed Abdellaoui & Han Bleichrodt & Olivier L’Haridon, 2008. "A tractable method to measure utility and loss aversion under prospect theory," Journal of Risk and Uncertainty, Springer, vol. 36(3), pages 245-266, June.
    23. Jonathan Cohen & Keith Marzilli Ericson & David Laibson & John Myles White, 2020. "Measuring Time Preferences," Journal of Economic Literature, American Economic Association, vol. 58(2), pages 299-347, June.
    24. Löschel, Andreas & Rodemeier, Matthias & Werthschulte, Madeline, 2020. "When nudges fail to scale: Field experimental evidence from goal setting on mobile phones," CAWM Discussion Papers 118, University of Münster, Münster Center for Economic Policy (MEP).
    25. Allcott, Hunt, 2011. "Rethinking real-time electricity pricing," Resource and Energy Economics, Elsevier, vol. 33(4), pages 820-842.
    26. Harding, Matthew & Hsiaw, Alice, 2014. "Goal setting and energy conservation," Journal of Economic Behavior & Organization, Elsevier, vol. 107(PA), pages 209-227.
    27. Andreoni, James & Kuhn, Michael A. & Sprenger, Charles, 2015. "Measuring time preferences: A comparison of experimental methods," Journal of Economic Behavior & Organization, Elsevier, vol. 116(C), pages 451-464.
    28. Alexander L. Brown & Hwagyun Kim, 2014. "Do Individuals Have Preferences Used in Macro-Finance Models? An Experimental Investigation," Management Science, INFORMS, vol. 60(4), pages 939-958, April.
    29. Michael D. Grubb & Matthew Osborne, 2015. "Cellular Service Demand: Biased Beliefs, Learning, and Bill Shock," American Economic Review, American Economic Association, vol. 105(1), pages 234-271, January.
    30. Katrina Jessoe & David Rapson, 2014. "Knowledge Is (Less) Power: Experimental Evidence from Residential Energy Use," American Economic Review, American Economic Association, vol. 104(4), pages 1417-1438, April.
    31. Shapiro, Jesse M., 2005. "Is there a daily discount rate? Evidence from the food stamp nutrition cycle," Journal of Public Economics, Elsevier, vol. 89(2-3), pages 303-325, February.
    32. Vischer, Thomas & Dohmen, Thomas & Falk, Armin & Huffman, David & Schupp, Jürgen & Sunde, Uwe & Wagner, Gert G., 2013. "Validating an Ultra-Short Survey Measure of Patience," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 120(2), pages 142-145.
    33. Brounen, Dirk & Kok, Nils & Quigley, John M., 2013. "Energy literacy, awareness, and conservation behavior of residential households," Energy Economics, Elsevier, vol. 38(C), pages 42-50.
    34. Nava Ashraf & Dean Karlan & Wesley Yin, 2006. "Tying Odysseus to the Mast: Evidence From a Commitment Savings Product in the Philippines," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 121(2), pages 635-672.
    35. Schleich, Joachim & Gassmann, Xavier & Meissner, Thomas & Faure, Corinne, 2019. "A large-scale test of the effects of time discounting, risk aversion, loss aversion, and present bias on household adoption of energy-efficient technologies," Energy Economics, Elsevier, vol. 80(C), pages 377-393.
    36. Wichman, Casey J., 2014. "Perceived price in residential water demand: Evidence from a natural experiment," Journal of Economic Behavior & Organization, Elsevier, vol. 107(PA), pages 308-323.
    37. Ted O'Donoghue & Matthew Rabin, 2015. "Present Bias: Lessons Learned and to Be Learned," American Economic Review, American Economic Association, vol. 105(5), pages 273-279, May.
    38. Gijs van de Kuilen & Peter P. Wakker, 2011. "The Midweight Method to Measure Attitudes Toward Risk and Ambiguity," Management Science, INFORMS, vol. 57(3), pages 582-598, March.
    39. Armin Falk & Anke Becker & Thomas Dohmen & Benjamin Enke & David B. Huffman & Uwe Sunde, 2017. "Global Evidence on Economic Preferences," NBER Working Papers 23943, National Bureau of Economic Research, Inc.
    40. Alexander K. Koch & Julia Nafziger, 2019. "Correlates of Narrow Bracketing," Scandinavian Journal of Economics, Wiley Blackwell, vol. 121(4), pages 1441-1472, October.
    41. Tatyana Deryugina & Alexander MacKay & Julian Reif, 2020. "The Long-Run Dynamics of Electricity Demand: Evidence from Municipal Aggregation," American Economic Journal: Applied Economics, American Economic Association, vol. 12(1), pages 86-114, January.
    42. Wichman, Casey J., 2017. "Information provision and consumer behavior: A natural experiment in billing frequency," Journal of Public Economics, Elsevier, vol. 152(C), pages 13-33.
    43. Kuchler, Theresa & Pagel, Michaela, 2021. "Sticking to your plan: The role of present bias for credit card paydown," Journal of Financial Economics, Elsevier, vol. 139(2), pages 359-388.
    44. Supreet Kaur & Michael Kremer & Sendhil Mullainathan, 2015. "Self-Control at Work," Journal of Political Economy, University of Chicago Press, vol. 123(6), pages 1227-1277.
    45. Harrison, Glenn W. & Martínez-Correa, Jimmy & Swarthout, J. Todd & Ulm, Eric R., 2017. "Scoring rules for subjective probability distributions," Journal of Economic Behavior & Organization, Elsevier, vol. 134(C), pages 430-448.
    46. Maribeth Coller & Melonie Williams, 1999. "Eliciting Individual Discount Rates," Experimental Economics, Springer;Economic Science Association, vol. 2(2), pages 107-127, December.
    47. Sebastien Houde, Annika Todd, Anant Sudarshan, June A. Flora , and K. Carrie Armel, 2013. "Real-time Feedback and Electricity Consumption: A Field Experiment Assessing the Potential for Savings and Persistence," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1).
    48. Schneider, Sebastian O. & Sutter, Matthias, 2020. "Higher Order Risk Preferences: Experimental Measures, Determinants and Related Field Behavior," VfS Annual Conference 2020 (Virtual Conference): Gender Economics 224643, Verein für Socialpolitik / German Economic Association.
    49. David Laibson, 1997. "Golden Eggs and Hyperbolic Discounting," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 112(2), pages 443-478.
    50. Peter C. Reiss & Matthew W. White, 2005. "Household Electricity Demand, Revisited," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 72(3), pages 853-883.
    51. Serdar Sayman & Ayse Öncüler, 2009. "An Investigation of Time Inconsistency," Management Science, INFORMS, vol. 55(3), pages 470-482, March.
    52. Koichiro Ito, 2014. "Do Consumers Respond to Marginal or Average Price? Evidence from Nonlinear Electricity Pricing," American Economic Review, American Economic Association, vol. 104(2), pages 537-563, February.
    53. Steven D. Levitt & John A. List, 2007. "What Do Laboratory Experiments Measuring Social Preferences Reveal About the Real World?," Journal of Economic Perspectives, American Economic Association, vol. 21(2), pages 153-174, Spring.
    54. Steven Sexton, 2015. "Automatic Bill Payment and Salience Effects: Evidence from Electricity Consumption," The Review of Economics and Statistics, MIT Press, vol. 97(2), pages 229-241, May.
    55. Harrison, Glenn W., 1986. "An experimental test for risk aversion," Economics Letters, Elsevier, vol. 21(1), pages 7-11.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Li, Li & Jeuland, Marc, 2023. "Household water savings and response to dynamic incentives under nonlinear pricing," Journal of Environmental Economics and Management, Elsevier, vol. 119(C).
    2. Goetz, Alexander & Mayr, Harald & Schubert, Renate, 2024. "One thing leads to another: Evidence on the scope and persistence of behavioral spillovers," Journal of Public Economics, Elsevier, vol. 236(C).
    3. Sanjit Dhami & Narges Hajimoladarvish & Pavan Mamidi, 2023. "Climate Change Risk, and Human Behavior: Theory and Evidence," CESifo Working Paper Series 10678, CESifo.
    4. Lin, Boqiang & Jia, Huanyu, 2024. "Present-biased individuals and their underinvestment in household energy efficiency: Evidence from first-tier Chinese cities," Energy Policy, Elsevier, vol. 185(C).
    5. Lawrence Jin & Minwook Kang, 2022. "Addiction, present‐bias, and self‐restraint," Southern Economic Journal, John Wiley & Sons, vol. 89(1), pages 138-159, July.
    6. Werthschulte, Madeline, 2023. "Present focus and billing systems: Testing ‘pay-as-you-go’ vs. ‘pay-later’," Journal of Economic Behavior & Organization, Elsevier, vol. 212(C), pages 108-121.
    7. Groh, Elke D. & Ziegler, Andreas, 2022. "On the relevance of values, norms, and economic preferences for electricity consumption," Ecological Economics, Elsevier, vol. 192(C).
    8. Singhal, Puja, 2024. "Inform me when it matters: Cost salience, energy consumption, and efficiency investments," Energy Economics, Elsevier, vol. 133(C).
    9. Feldhaus, Christoph & Lingens, Jörg & Löschel, Andreas & Zunker, Gerald, 2024. "The intrinsic value of decision rights: Field evidence from electricity contract choice automation," Resource and Energy Economics, Elsevier, vol. 78(C).
    10. Kanberger, Elke D. & Ziegler, Andreas, 2023. "On the preferences for an environmentally friendly and fair energy transition: A stated choice experiment for Germany," Energy Policy, Elsevier, vol. 182(C).
    11. Archana Dang, 2023. "Time preferences and obesity: Evidence from urban India," Agricultural Economics, International Association of Agricultural Economists, vol. 54(4), pages 487-514, July.
    12. Löschel, Andreas & Rodemeier, Matthias & Werthschulte, Madeline, 2023. "Can self-set goals encourage resource conservation? Field experimental evidence from a smartphone app," European Economic Review, Elsevier, vol. 160(C).
    13. Mao, Hui & Shi, Chaoqian & Tang, Heyan & Lu, Yufeng, 2024. "Time preferences and energy consumption of rural household in China," Energy Economics, Elsevier, vol. 132(C).
    14. Jin, Lawrence & Kang, Minwook, 2023. "Human-capital investments as a commitment device," Economic Modelling, Elsevier, vol. 126(C).
    15. Alt, Marius, 2024. "Better us later than me now —," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 108(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Werthschulte, Madeline & Löschel, Andreas, 2019. "Cost misperceptions and energy consumption: Experimental evidence for present bias and biased price beliefs," CAWM Discussion Papers 111, University of Münster, Münster Center for Economic Policy (MEP).
    2. Werthschulte, Madeline, 2023. "Present focus and billing systems: Testing ‘pay-as-you-go’ vs. ‘pay-later’," Journal of Economic Behavior & Organization, Elsevier, vol. 212(C), pages 108-121.
    3. Andrej Gill & Florian Hett & Johannes Tischer, 2022. "Time Inconsistency and Overdraft Use: Evidence from Transaction Data and Behavioral Measurement Experiments," Working Papers 2205, Gutenberg School of Management and Economics, Johannes Gutenberg-Universität Mainz.
    4. Gill, Andrej & Hett, Florian & Tischer, Johannes, 2022. "Time inconsistency and overdraft use: Evidence from transaction data and behavioral measurement experiments," SAFE Working Paper Series 347, Leibniz Institute for Financial Research SAFE.
    5. Gill, Andrej & Hett, Florian & Tischer, Johannes, 2022. "Time inconsistency and overdraft use: Evidence from transaction data and behavioral measurement experiments," Discussion Papers 18/2022, Deutsche Bundesbank.
    6. Werthschulte, Madeline, 2020. ""Pay-later" vs. "pay-as-you-go": Experimental evidence on present-biased overconsumption and the importance of timing," ZEW Discussion Papers 20-089, ZEW - Leibniz Centre for European Economic Research.
    7. Werthschulte, Madeline, 2020. ""Pay-later" vs. "pay-as-you-go": Experimental evidence on present-biased overconsumption and the importance of timing," CAWM Discussion Papers 121, University of Münster, Münster Center for Economic Policy (MEP).
    8. Schleich, Joachim & Gassmann, Xavier & Meissner, Thomas & Faure, Corinne, 2019. "A large-scale test of the effects of time discounting, risk aversion, loss aversion, and present bias on household adoption of energy-efficient technologies," Energy Economics, Elsevier, vol. 80(C), pages 377-393.
    9. Boonmanunt, Suparee & Lauer, Thomas & Rockenbach, Bettina & Weiss, Arne, 2020. "Field evidence on the role of time preferences in conservation behavior," Journal of Environmental Economics and Management, Elsevier, vol. 104(C).
    10. Groh, Elke D. & Ziegler, Andreas, 2022. "On the relevance of values, norms, and economic preferences for electricity consumption," Ecological Economics, Elsevier, vol. 192(C).
    11. Elke D. Groh & Andreas Ziegler, 2021. "On the relevance of values, norms, and economic preferences for electricity consumption," MAGKS Papers on Economics 202107, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
    12. Dániel Horn & Hubert János Kiss, 2020. "Time preferences and their life outcome correlates: Evidence from a representative survey," PLOS ONE, Public Library of Science, vol. 15(7), pages 1-26, July.
    13. Groh, Elke D. & Ziegler, Andreas, 2020. "On the relevance of economic preferences, values, norms, and socio-demographics for electricity consumption," VfS Annual Conference 2020 (Virtual Conference): Gender Economics 224587, Verein für Socialpolitik / German Economic Association.
    14. Thomas Meissner & Xavier Gassmann & Corinne Faure & Joachim Schleich, 2023. "Individual characteristics associated with risk and time preferences: A multi country representative survey," Journal of Risk and Uncertainty, Springer, vol. 66(1), pages 77-107, February.
    15. Akin, Zafer & Yavas, Abdullah, 2023. "Elicited Time Preferences and Behavior in Long-Run Projects," MPRA Paper 117133, University Library of Munich, Germany.
    16. Jindrich Matousek & Tomas Havranek & Zuzana Irsova, 2022. "Individual discount rates: a meta-analysis of experimental evidence," Experimental Economics, Springer;Economic Science Association, vol. 25(1), pages 318-358, February.
    17. Broberg, Thomas & Kažukauskas, Andrius, 2021. "Information policies and biased cost perceptions - The case of Swedish residential energy consumption," Energy Policy, Elsevier, vol. 149(C).
    18. Pablo Brañas-Garza & Diego Jorrat & Antonio M. Espín & Angel Sánchez, 2023. "Paid and hypothetical time preferences are the same: lab, field and online evidence," Experimental Economics, Springer;Economic Science Association, vol. 26(2), pages 412-434, April.
    19. David Bradford & Charles Courtemanche & Garth Heutel & Patrick McAlvanah & Christopher Ruhm, 2017. "Time preferences and consumer behavior," Journal of Risk and Uncertainty, Springer, vol. 55(2), pages 119-145, December.
    20. Joshua Tasoff & Wenjie Zhang, 2022. "The Performance of Time-Preference and Risk-Preference Measures in Surveys," Management Science, INFORMS, vol. 68(2), pages 1149-1173, February.

    More about this item

    Keywords

    Energy consumption; Present bias; Price beliefs; Artefactual field experiment;
    All these keywords.

    JEL classification:

    • C93 - Mathematical and Quantitative Methods - - Design of Experiments - - - Field Experiments
    • D15 - Microeconomics - - Household Behavior - - - Intertemporal Household Choice; Life Cycle Models and Saving
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • Q49 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Other

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:jeeman:v:109:y:2021:i:c:s0095069621000723. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/622870 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.