A higher adoption rate of energy-efficient appliances is expected to contribute towards improvement in energy efficiency within the residential sector. In this study, we explore the possibility that an improvement of the consumers’ energy-related investment literacy increases the probability that households identify the most cost-effective appliance.

There is evidence that many individuals make suboptimal investment decisions when the benefits and costs associated with that decision are distributed over time. One example is the decision to adopt new electrical appliances, with the benefits of choosing a more energy-efficient device materializing only in the future.

To make an economically rational decision in the domain of appliance choice, an individual should perform an investment analysis taking into account the future operating costs of the appliances on offer. This could be a challenging task – it entails both ‘information cost’ and ‘optimization cost’ and the processing of information is cognitively burdensome for boundedly rational consumers. A higher level of energy-related investment literacy can make the investment analysis substantially ‘less costly’ for consumers, increasing the likelihood that they optimize over the lifetime cost of an appliance.

In this research, we analyse the impact of an individual’s energy-related investment literacy and that of decision support tools, such as educational programs and online calculators, on the probability that individuals identify the appliance with the lowest lifetime cost. For this purpose, we conducted an online, randomized controlled experiment on two independently chosen samples of the Swiss population. The respondents were randomly assigned to either a control group, or a treatment with a short education program, or another treatment with access to an online energy-cost calculator. The task for survey participants was to identify the appliance with the lowest lifetime cost given two refrigerators differing only in purchase price and energy consumption. 

The identification task in the experimental design.

Results across the two samples are encouraging. We find that i) pre-treatment energy and investment literacy positively impact on the probability of identifying the appliance with the lowest lifetime cost; ii) the reinforcement of energy-related investment literacy increases the rate at which individuals identify the appliance with the lowest lifetime cost; and iii) while both interventions are effective in increasing the chances that an appliance with the lower lifetime cost is chosen, the online calculator turned out to be more effective than the educational program. This supports the insight that the cognitive effort to calculate and compare the lifetime cost is a major barrier for individuals in identifying the most efficient appliance. At the same time, a simple online energy-cost calculator is a low cost tool that could effectively empower boundedly rational consumers to make optimal decisions.

Further details about this research are available online.

The people involved in this project are Nilkanth Kumar, Julia Blasch, Adan L. Martinez-Cruz, and ESC member Prof. Massimo Filippini.

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