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

J.E. Blasch, Massimo Filippini, Nilkanth Kumar

Research output: Contribution to JournalArticleAcademicpeer-review

Abstract

It is an ongoing debate how to increase the adoption of energy-efficient light bulbs and household appliances in the presence of the so-called ‘energy efficiency gap’. One measure to support consumers’ decision-making towards the purchase of more efficient appliances is the display of energy-related information in the form of energy-efficiency labels on electric consumer products. Another measure is to educate consumers in order to increase their level of energy and investment literacy. Thus, two questions arise when it comes to the display of energy-related information on appliances: (1) What kind of information should be displayed to enable consumers to make rational and efficient choices? (2) What abilities and prior knowledge do consumers need to possess to be able to process this information? In this paper, using a series of (recursive) bivariate probit models and three samples of 583, 877 and 1375 households from three major Swiss urban areas, we show how displaying information on the future energy consumption of electrical appliances in monetary terms (CHF), rather than in physical units (kWh), increases the probability that an individual makes a calculation and identifies the appliance with the lowest lifetime cost. In addition, our econometric results suggest that individuals with a higher level of energy and, in particular, investment literacy are more likely to perform an optimization rather than relying on a decision-making heuristic. These individuals are also more likely to identify the most (cost-)efficient appliance
Original languageEnglish
Pages (from-to)1-20
Number of pages20
JournalResource and Energy Economics
Early online date13 Jun 2017
DOIs
Publication statusPublished - 2018

Fingerprint

Literacy
Household
Energy
Energy efficiency
Costs
Bivariate probit model
Urban areas
Heuristics
Prior knowledge
Decision making
Energy consumption
Purchase
Econometrics
Consumer decision making
Consumer products

Keywords

  • Energy-efficiency
  • Bounded rationality
  • Energy-using durables
  • Energy label
  • Energy literacy
  • Online randomized controlled trial

Cite this

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abstract = "It is an ongoing debate how to increase the adoption of energy-efficient light bulbs and household appliances in the presence of the so-called ‘energy efficiency gap’. One measure to support consumers’ decision-making towards the purchase of more efficient appliances is the display of energy-related information in the form of energy-efficiency labels on electric consumer products. Another measure is to educate consumers in order to increase their level of energy and investment literacy. Thus, two questions arise when it comes to the display of energy-related information on appliances: (1) What kind of information should be displayed to enable consumers to make rational and efficient choices? (2) What abilities and prior knowledge do consumers need to possess to be able to process this information? In this paper, using a series of (recursive) bivariate probit models and three samples of 583, 877 and 1375 households from three major Swiss urban areas, we show how displaying information on the future energy consumption of electrical appliances in monetary terms (CHF), rather than in physical units (kWh), increases the probability that an individual makes a calculation and identifies the appliance with the lowest lifetime cost. In addition, our econometric results suggest that individuals with a higher level of energy and, in particular, investment literacy are more likely to perform an optimization rather than relying on a decision-making heuristic. These individuals are also more likely to identify the most (cost-)efficient appliance",
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Boundedly rational consumers, energy and investment literacy, and the display of information on household appliances. / Blasch, J.E.; Filippini, Massimo; Kumar, Nilkanth.

In: Resource and Energy Economics, 2018, p. 1-20.

Research output: Contribution to JournalArticleAcademicpeer-review

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