November 28, 2017

Nudging Won a Nobel Prize

Enervee contributions to the 2017 Behavior, Energy and Climate Change conference

Written by
Anne Arquit Niederberger

Hot on the heels of the announcement that Prof. Richard Thaler had been awarded the 2017 Nobel Economics Prize – in recognition of the instrumental role that his empirical findings and theoretical insights played in creating the rapidly expanding field of behavioral economics – Alex Katzman (Enervee’s VP of Growth) and I found ourselves sharing our latest behavioral research at the 2017 Behavior, Energy and Climate Change conference.

Snohomish PUD Smart Rewards Case Study

Alex presented a client case study in the lighting round on residential programs that looked at the work we’ve been doing with the Snohomish Public Utility District to get customers to choose efficient products without financial incentives, applying ideas developed by Thaler, which we discussed in an earlier blog post.

SnoPUD Smart Rewards delivered 3.8X growth in kWh savings in 2016, compared with 2015, and the program was 32% more cost effective using product rewards instead of just cash rebates to incentivize efficient purchases.

These results were achieved by offering an energy efficiency savings kit valued at $100 – containing 4 LED bulbs, a Tier 2 advanced power strip and a showerhead adapter – as the reward for making efficient appliance purchases, in lieu of traditional cash rebates. In 2017, the team set out to see if they could maintain the same level of participation and savings – for 60% less cost – by changing the reward to 10 LEDs. Results to date have been very promising, achieving similar kWh savings, while increasing cost effectiveness for 2017 even more.

Effective Nudging, Powered by Data

I participated in the session on using information and data to engage customers, summarizing insights on effective nudging across decision styles and choice models. Prior randomized controlled trial (RCT) studies had documented that there are two independent levers that we can use to drive more efficient purchases:

1. The Enervee Score, a zero to 100 relative energy efficiency score, a heuristic that’s consistently led shoppers to choose more efficient appliance and electronics models; and

2. Quantitative bill savings, which can also drive more efficient choices for some demographics (low-income shoppers), product categories and buying contexts.

What drives energy efficient purchasing?

Yet we’re up against a powerful lay theory. Results from a recent multinational survey that showed that 1/3 of consumers think highly energy efficient products are much more expensive to buy. We then confirmed this bias with two additional RCT experiments. When consumers are shown a washer model with a high score of 100, 2/3 of consumers believe it’s either “very” or “extremely” expensive – which is not the case when shown the same model with a score of 51. On the flip side, when price is high, 80% of consumers credit the machine with an Energy Score above average.

The need for better data and better interventions

While some product categories show a correlation between efficiency and price, many don’t. And we now have granular, daily updated market data, which show that, across the vast majority of product categories, it’s possible to purchase super-efficient models that don’t cost more.

Since people are only in the market to purchase a single washing machine, offering guidance based on market averages is misleading at best.

So, what does it take to overcome this longstanding bias? By understanding dual processing models and providing information with a combination of visual cues, price worthiness and user reviews, consumers can get past their entrenched belief that efficient products cost more.

Next, I presented results of a 3-way experiment (context x score x savings) to understand the influence of buying context – namely purchasing appliances as part of a planned remodeling project versus in an “emergency” (to replace a broken washing machine).

What we found is that people made less efficient choices when they had to act fast and replace a broken machine.

Why is that?

One reason could be that their focus is on purchasing a replacement, fast (no room for abstract energy efficiency concepts, or aspirations about something better). Samson & Voyer [1] published a paper on emergency purchasing situations (EPS) in which they postulated that baseline product evaluation processes in an EPS are often relatively reflective, with a focus on the here and now, rather than abstract concepts or long-term implications. Use information at hand — and decide.

We then looked at the effects of Energy Score & bill savings.

Within a planned buying context, people make use of the visual Enervee Score cue, but adding the Energy Savings information to the experience with the Enervee Score has no effect on the decision outcome.

This is consistent with regulatory focus theory [2], in that promotion-focused consumers (preferred for purchases that occur in the more distant future) should rely more on heuristic modes of evaluating products. Positive mood, lower stress & lack of time pressure are also associated with heuristic processing [3].

The excitement & anticipation about the remodeling project makes us dream, rather than dwelling on consequences.

Deciding how to decide

Within a distressed, fast buying context, Enervee Score still works, and if we add the Energy Savings information to the Enervee Score, we see a considerable step-up in terms of energy efficiency of choices. In other words, presenting both features here is important.

Prevention-focused consumers rely more on reflective modes of evaluation. The high price and long lifetime of the product (purchase involvement) would also favor greater reflection [3], where the energy bill savings might factor into the decision process. Yet limited cognitive resources due to subjective forces such as perceived time pressure and stress may counter reflectivity through heuristic product evaluations (e.g., the lay theory bias that we talked about earlier) — therefore the Energy Score is also helpful.

Our conclusion? By taking a consumer-centric approach that works across decision styles & choice models, there’s great untapped potential for outcomes that are beneficial for consumers and the energy & climate system.

You can get the full conference paper here.

Behavior Change to Address Low-Income Challenges

On a side note, I was pleased to see increased emphasis on low-income energy efficiency at this year’s BECC, including an in-depth session on programs implemented in Knoxville TN, in cooperation with the Tennessee Valley Authority and the City of Knoxville. We see great potential to modernize, scale and improve the cost-effectiveness of low-income programs by leveraging utility-branded marketplaces to empower households to reduce their energy burden.

Notes

[1] Samson, Alain and Voyer, Benjamin G. (2014) Emergency purchasing situations: implications for consumer decision-making. Journal of Economic Psychology, 44 . pp. 21–33. ISSN 0167–4870.

[2] Higgins, E. T. (1998). Promotion and prevention: Regulatory focus as a motivational principle. In M. P. Zanna (Ed.), Advances in Experimental Psychology, Vol. 30 (pp. 1–46). San Diego, CA: Academic Press.

[3] Samson, A. and Voyer, B.G. (2012). Two minds, three ways: dual system and dual process models in consumer psychology. Ams Review, 2 (2–4). pp. 48–71. ISSN 1869–814X

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