From intention to action: Can nudges help consumers to choose renewable energy?

doi:10.1016/j.enpol.2014.07.008

Energy Policy

Volume 74, November 2014, Pages 376-382

https://doi.org/10.1016/j.enpol.2014.07.008 Get rights and content

Highlights

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Preferences concerning renewable energy contracts do not translate into action.
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Nudges are cheap policy tools, easily scaled up, coercion-free, and usually unavoidable.
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We design and implement a survey experiment to test various nudges.
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A default nudge proves effective in aligning intention and action.

Abstract

In energy consumption, individuals feature a gap between intention and action. Survey data from the US, the UK, and other European countries show that 50–90% of respondents favour energy from renewable sources, even at a small premium. Yet less than 3% actually buy renewable energy. We investigate how nudges – a slight change in the information set that an individual faces when taking a decision – can help individuals align behaviour with intention. We present evidence from an original survey experiment on which nudges affect the choice whether to contract renewable energy or conventional energy. We find that only a default nudge has a significant effect, while all other nudges prove ineffective. In our setting, a default nudge increases the share of individuals who choose renewable energy by 44.6%.

Introduction

One of the most pressing environmental problems is climate change (Nordhaus, 2013, Stern, 2006). While energy production is the biggest single contributor to greenhouse gas emissions (IPCC, 2007), consuming renewable energy instead of conventional energy reduces these emissions (Shafiei and Salim, 2014). Renewable energy policies that address climate change thus either focus on innovations in technology or changes in behaviour. While policy-making has predominantly relied on the former, we investigate the latter. The following stylized fact shows the potential of our research:

Surveys in various Western countries typically show that 50–90% of respondents favour energy from renewable sources, even at a small premium (Kaenzig et al., 2013, Pichert and Katsikopoulos, 2008). Yet, those preferences do not translate into action: actual users of renewable energy constitute but a tiny fraction of the population, 0.4% in Finland, 0.5% in the UK, 1% in Ireland and Germany, 2% in Switzerland, and 2.8% in the US (Bird et al., 2002, Heeter and Nicholas, 2013). The gap between intention and action has only recently been recognised in research on energy behaviour (Allcott and Mullainathan, 2010, Sunstein and Reisch, 2013). A nudge – a slight change in the information set that an individual faces when taking a decision – can help people align intention and action.

The use of nudges as a policy tool has become widespread following Thaler and Sunstein (2008) and Camerer et al. (2003). This literature suggests two complementary rationales for using nudges: firstly, the gap between intention and action shows that individuals are boundedly rational in the choice between conventional and renewable energy. Due to their limitations in cognitive processes and attention, individuals have difficulties understanding the situation they are in and suffer from an imperfect ability to process new information (Ariely, 2009, Spiegler, 2011, Thaler and Sunstein, 2003). Consequently, they often fail to act upon their long-term intentions (O׳Donoghue and Rabin, 1999, Taubinsky, 2013). This is where nudges can help individuals. Nudges are an attractive policy tool: they are cheap and can easily be scaled up. Furthermore, nudges are coercion-free: individuals retain the freedom to pick from the original choice set. Lastly, they are uncontroversial: it is unavoidable to present a decision in some way or another.

Secondly, research on the effectiveness of nudges in energy consumption (Allcott, 2011, Allcott and Mullainathan, 2010, Allcott and Rogers, 2012, Costa and Kahn, 2013) has shown the great effectiveness of using nudges as energy policy instruments. Allcott and Mullainathan (2010), for instance, find that a nudge can lower energy consumption by as much as 2% and at a negative cost. Empirical evidence on the effectiveness of different nudges for the choice between conventional and renewable energy is missing, however. Our research fills this gap. We use an original survey experiment to test how several nudges affect the choice whether to contract renewable energy or conventional energy. The nudges we implement in our survey each address one or more potential biases in the behaviour of decision makers.

The remainder of this article is structured as follows: Section 2.1 presents the setting of our experiment, Section 2.2 describes each nudge and its implementation, and Section 3 presents and discusses the empirical results. Section 4 concludes and provides policy recommendations.

Section snippets

Setting

We provide evidence on which nudges do and which do not work at the time of choosing an energy contract. Our original experiment imitates the situation that a consumer faces when she has just clicked on the website of a utility company and can choose between two different contract offers. To emulate this setting, we implemented the experiment as an online survey (a similar methodology is used by Lillemo, 2014).

Our experiment runs as follows: we ask the subjects to imagine they have moved to a

Results and discussion

In this section, we first present summary statistics for the different treatment groups. Second, we test whether the probability of choosing the renewable contract is significantly different in any of the nudging groups compared to the control group.

Fig. 2 shows how the 475 subjects chose, according to each treatment group. The result from the no-nudge comparison group is the benchmark against which we compare the effectiveness of each nudge. As can be seen, renewable energy was chosen by 41

Conclusions and policy implications

Climate change is a severe problem for the environment. Policies that address climate change either focus on technological innovations or behavioural changes. Whereas policy-making has mainly focused on technology, our research studies behaviour. We investigate how nudges affect an individual׳s decision to choose between renewable energy and conventional energy. Nudges are an attractive policy tool because they are inexpensive, free of coercion and implementable at scale. Besides, nudges are

Acknowledgments

We thank Larbi Alaoui and, in particular, Rosemarie Nagel for guidance throughout this project. Moreover, we thank Michael Anreiter, Stefan Pitschner, and Hrvoje Stojic, four anonymous referees, and seminar participants in the UPF Student Seminar, the Oxford Winter Course in Ecological Economics, and the UPF Management and Behavioural Research Breakfast for helpful comments. Financial support from the Spanish Ministry of Science and Innovation (ECO2011-25295) is gratefully acknowledged.

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Short CommunicationFrom intention to action: Can nudges help consumers to choose renewable energy?

Highlights

Abstract

Introduction

Section snippets

Setting

Results and discussion

Conclusions and policy implications

Acknowledgments

J. Public Econ.

Organ. Behav. Hum.

Appetite

Renew. Sust. Energy Rev.

Energy Policy

Energy Policy

J. Environ. Psychol.

Energy Policy

Ecol. Econ.

Behavioral science and energy policy

Science

Predictably Irrational, Revised and Expanded Edition: The Hidden Forces That Shape Our Decision

Regulation for conservativesbehavioural economics and the case for “asymmetric paternalism”

Univ. Pa. Law Rev.

Energy conservation “nudge” and environmentalist ideologyevidence from a randomized residential field experiment

J. Eur. Econ. Assoc.

What comes to mind

Q. J. Econ.

Online marketing of green electricity in Germany – a content analysis of providers׳ websites

Energy Policy

Adding asymmetrically dominated alternativesviolations of regularity and the similarity hypothesis

J. Consum. Res.

Short Communication
From intention to action: Can nudges help consumers to choose renewable energy?