Saturday, October 3, 2009

Peer comparison feedback as a behavioural nudge

Sometime back, I had blogged about a random-assignment experiment by a Californian electricity utility in "nudging" its customers to optimize on their electricity consumption by sending out personalized report cards, which rated them on their energy use compared with that of their neighbors.

Now in an NBER working paper, Ian Ayres, Sophie Raseman, and Alice Shih examined data from the Sacramento Utility experiment and a electricity and natural gas (Puget Sound Energy), and conclude that "by providing feedback to customers on home electricity and natural gas usage with a focus on peer comparisons, utilities can reduce energy consumption at a low cost". They find that monthly or quarterly mailed peer feedback reports to customers led to reductions in energy consumption of 1.2% in the latter and 2.1% percent in the former, with the decrease being sustained over time indicating the durable nature of the change brought about.

In both experiments, households in the treatment group with lower house values saved more, on average, than households with higher house values, and those with higher pre-treatment energy use saved more than those with lower pre-treatment energy use. Further, in order to avoid backlash, the comparison reporting was confined only to the larger consumers of electricity. They also find relevance for such peer reporting through periodic mailings to be of use in many areas - school attendance, medical check-ups, increase savings etc - to achieve the desired changes in behaviours and maximize on welfare gains. The peer comparison reports were sent in the formats shown below

The success of such peer comparison reporting has relevance for public policy making in addressing the environmental problems like climate change. Such behavioural nudges are much more effective than the conventional awareness creation drives on such issues that focus on highlighting distant and macro-level implications (like melting of glaciers, rise of sea levels, rise in temperatures) of climate change. It may be more appropriate to have rules that mandate vehicles or electronic appliances to prominently display their carbon footprint grading stickers. Even more effective would be nuanced behavioural nudges like that done in the aforementioned studies. How about a "scorn" sticker prominently adorning the back of gas guzzlers like SUVs?

Update 1 (24/02/2010)
National Grid, the electricity and gas provider to several Northeastern US states, announced the expansion of its Home Energy Report program, which delivers energy-use statements to homeowners showing how they stack up against their neighbors in similar-size homes. It follows a successful pilot program, started in October 2009, with a test group of 50,000 customers. Energy use (both electric and gas) dropped by 1 percent for this group since the pilot began, compared to a control group that did not receive the report.

See the National Grid's Home Energy Report program here. See also the Sacramento Municipal Utility District's home energy saving tools here.

Update 2 (26/5/2011)

Progress Energy, a Raleigh-based power company, is the latest to adopt the peer pressure based nudging to reduce residential electrical consumption. Progress will mail notices telling customers how their household power bills compare to their neighbors. The periodic notices will be sent out to random customers who have above-average utility bills. The random sample is intended to cover a range of customer profiles, making the program statistically valid.

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