Heterogeneous (Mis)Perceptions of Energy Costs: Implications for Measurement and Policy Design

Do Consumers Acquire Information Optimally? Experimental Evidence from Energy Efficiency

“…Our results also build on the nascent behavioral public economics literature describing optimal policy with behavioral agents (e.g., Bernheim and Rangel, 2009;Mullainathan, Schwartzstein and Congdon, 2012;Taubinsky and Rees-Jones, 2018;Farhi and Gabaix, 2020;List et al, 2022). Much of the previous work focuses on optimal allocation policies, such as quantity standards or taxes, to correct distorted product choice (e.g., Allcott, Mullainathan and Taubinsky, 2014;Allcott, Lockwood and Taubinsky, 2019;Houde and Myers, 2019), or, in some cases, on policies that reduce information frictions (e.g., Handel, Kolstad and Spinnewijn, 2019). We add to this literature by considering a non-traditional policy designed specifically to address mental gaps in information acquisition.…”

“…Despite readily available information, consumers are often poorly informed and as a result, make mistakes in a variety of decision-making settings including health care, financial investments, and energy efficiency (e.g., Hortaçsu and Syverson, 2004;Choi, Laibson and Madrian, 2010;Handel, 2013;Bronnenberg et al, 2015;Handel and Kolstad, 2015;Bhargava, Loewenstein and Sydnor, 2017;Choi, Laibson and Madrian, 2010;Houde and Myers, 2019). The failure of consumers to acquire valuable information could be a rational response to "frictions", in the form of costly time and attention required to acquire information.…”

“…Appliances and building-related equipment account for almost all the energy used in buildings, which as a sector accounts for around 40% of U.S. energy consumption and associated greenhouse gas (GHG) emissions (Baldwin et al, 2015). Despite the fact that energy labeling policies for energy-using durables have been in place in the U.S. since the 1980s, a large share of consumers misperceive the associated costs (Houde and Myers, 2019). When people lack information or are inattentive to the operating costs of energy-using durables, they will sub-optimally invest in efficiency even under carbon pricing policies.…”