Boundedly rational consumers, energy and investment literacy, and the display of information on household appliances

Blasch, Julia; Filippini, Massimo; Kumar, Nilkanth

doi:10.1016/j.reseneeco.2017.06.001

“…We borrow our empirical illustration from Blasch et al (2017) who implement an online randomized controlled experiment in which respondents take two binary decisions. One decision is the identification, from among two alternatives, of the refrigerator with the lowest lifetime cost.…”

Section: Empirical Examplementioning

confidence: 99%

“…Another decision consists on carrying out (or not) an investment calculation to determine the lifetime cost of the two refrigerators. Blasch et al (2017) hypothesize that performing an investment calculation has a positive causal effect on the probability of identifying the refrigerator with the lowest lifetime cost. Thus a RBP model is expected to yield a statistically significant positive coefficient associated to the investment calculation variable -i.e.…”

Section: Empirical Examplementioning

confidence: 99%

A note on the different interpretation of the correlation parameters in the Bivariate Probit and the Recursive Bivariate Probit

Filippini

¹

,

Greene

²

,

Kumar

³

et al. 2018

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in Department of Economics, Centro de Investigación y Docencia Económicas (CIDE)Last revision: September 15, 2017 AbstractThis note makes the point that, if a Bivariate Probit (BP) model is estimated on data arising from a Recursive Bivariate Probit (RBP) process, the resulting BP correlation parameter is a weighted average of the RBP correlation parameter and the parameter associated to the endogenous binary variable. Two corollaries follow this proposition: i) a zero correlation parameter in a BP model, usually interpreted as evidence of independence between the binary variables under study, may actually mask the presence of a RBP process; and ii) the interpretation of the correlation parameter in the RBP is not the same as in the BP -i.e. the RBP correlation parameter does not necessarily reflect the correlation between the binary variables under study.

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“…the ability to perform an investment analysis, in the population tends to be relatively low. Moreover, Blasch et al (2017b) show that a great share of individuals do neither know the annual electricity consumption of their household or the typical consumption of appliances such as a washing machine in kWh, nor do they consider the lifetime cost of electrical appliances when choosing between two appliances. As energy-efficient electrical appliances are usually more costly than less efficient appliances, boundedly rational consumers will tend to opt for the less efficient appliances with lower upfront cost.…”

Section: Introductionmentioning

confidence: 99%

Narrowing the Energy Efficiency Gap: The Impact of Educational Programs, Online Support Tools and Energy-Related Investment Literacy

Blasch

¹

,

Filippini

²

,

Kumar

³

et al. 2017

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in Department of Economics, Centro de Investigación y Docencia Económicas (CIDE)Last revision: September 21, 2017 AbstractThere is evidence that many individuals make suboptimal investment decisions when the benefits and costs associated with that decision are distributed over time. One example is the decision to adopt new electrical appliances, with the benefits of choosing a more energyefficient device materializing only in the future. This paper analyses the impact of the level of an individual's energy-related investment literacy on the adoption of energy-efficient appliances. Moreover, the empirical analysis explores the impact of decision support tools such as educational slides on the probability that individuals identify the appliance with the lowest lifetime cost, which is ideally also the most energy-efficient appliance. To test the influence of these decision support tools, we developed an online randomized controlled trial and implemented it on two independently chosen samples of the Swiss population. One treatment offers a short education program on how to calculate the lifetime cost of an appliance -via a set of information slides. The second intervention provides access to an online calculator that supports the investment decision-making of the individual. Results across the two samples are encouraging. We find that i) pre-treatment energy and investment literacy positively impact on the probability of identifying the appliance with the lowest lifetime cost; ii) the reinforcement of energy-related investment literacy increases the rate at which individuals identify the appliance with the lowest lifetime cost; and iii) while both interventions are effective in increasing the chances that an appliance with the lower lifetime cost is chosen, the online calculator turned out to be more effective than the educational program. Public policy implications are discussed.

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“…If information about total lifetime cost of the light bulbs was provided, more consumers opted for the more efficient compact fluorescent light bulbs compared to the control condition. Also Blasch et al (2016) test whether providing consumers with information about the average yearly electricity cost for an appliance increases the probability that they opt for a more efficient appliance. They find a significantly positive relationship between the provision of monetary information on electricity consumption and the probability to perform an investment calculation rather than following a decision-making heuristic, and hence the probability to choose a more efficient appliance.…”

Section: Energy and Investment Literacymentioning

confidence: 99%

“…All these behavioral failures tend to prevent households from identifying the appliances that minimize lifetime costs or from using the appliances in an efficient way. On the contrary, as shown by Blasch et al (2016), households that are scoring high with respect to investment and energy literacy seem to be less prone to boundedly rational behaviour.…”

Section: Introductionmentioning

confidence: 97%

The Role of Energy and Investment Literacy for Residential Electricity Demand and End-use Efficiency

Blasch

¹

,

Boogen

²

,

Filippini

³

et al. 2017

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in AbstractThis paper estimates the level of transient and persistent efficiency in the use of electricity in Swiss households using the newly developed generalized true random effects model (GTREM). An unbalanced panel dataset of 1, 994 Swiss households from 2010 to 2014 collected via a household survey is used to estimate an electricity demand frontier function. We further investigate whether energy and investment literacy have an influence on the household electricity consumption. The results show significant inefficiencies in the use of electricity among Swiss households, both transient (11%) and persistent (22%). We note that the high persistent inefficiency is indicative of structural problems faced by households and systematic behavioral shortcomings in residential electricity consumption. These results indicate a considerable potential for electricity savings and thus reaching the reduction targets defined by the Swiss federal council as part of the Energy Strategy 2050, wherein end-use efficiency improvement is one of the main pillars. The results support a positive role of energy and, in particular, investment literacy in reducing household electricity consumption. Policies targeting an improvement of these attributes could help to improve efficiency in the use of energy within households.

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Boundedly rational consumers, energy and investment literacy, and the display of information on household appliances

Cited by 112 publications

References 37 publications

A note on the different interpretation of the correlation parameters in the Bivariate Probit and the Recursive Bivariate Probit

A note on the different interpretation of the correlation parameters in the Bivariate Probit and the Recursive Bivariate Probit

Narrowing the Energy Efficiency Gap: The Impact of Educational Programs, Online Support Tools and Energy-Related Investment Literacy

The Role of Energy and Investment Literacy for Residential Electricity Demand and End-use Efficiency

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