Scandinavian Working Papers in Economics

CERE Working Papers,
CERE - the Center for Environmental and Resource Economics

No 2016:2: Perceptions and inattention in private electricity consumption

Andrius Kazukauskas () and Thomas Broberg ()
Additional contact information
Andrius Kazukauskas: CERE and the Department of Economics, Umeå University, Postal: Department of Economics, 901 87 Umeå, Sweden
Thomas Broberg: CERE and the Department of Economics, Umeå University, Postal: Department of Economics, 901 87 Umeå, Sweden

Abstract: Households typically receive utility bills where all electricity use during a fixed period of time is lumped together. The lack of direct feedback in the form of marginal costs of using specific electric appliances reduces the attention people give to their energy consumption and potentially leads to biased cost perceptions and mistakes in households’ decision making. In this paper we empirically investigate whether people who are inattentive to energy-related issues have different perceptions regarding the cost of using electricity. We conclude that many households base their decisions regarding electricity use on poor knowledge about the costs involved, that cost perceptions on average tend to be upward biased, and that cost perceptions generally are higher among inattentive respondents. This result somewhat contradicts the common notion that inattention causes lower price (cost) perceptions and, subsequently, too much energy use. Finally, we also find that a substantial share of the sampled households, in particular households with poor knowledge about their energy consumption, are not willing to receive customized information on their energy use and costs. This suggests that some households do not expect to benefit from such information.

Keywords: DSM; energy efficiency; energy policy; inattention; information; nudge

JEL-codes: D12; Q41; Q48

29 pages, February 22, 2016

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