Household energy use: Applying behavioural economics to understand consumer decision-making and behaviour

Abstract

Household energy conservation has emerged as a major challenge and opportunity for researchers, practitioners and policymakers. Consumers also seem to be gaining greater awareness of the value and need for sustainable energy practices, particularly amid growing public concerns over greenhouse gas emissions and climate change. Yet even with adequate knowledge of how to save energy and a professed desire to do so, many consumers still fail to take noticeable steps towards energy efficiency and conservation. There is often a sizeable discrepancy between peoples’ self-reported knowledge, values, attitudes and intentions, and their observable behaviour—examples include the well-known ‘knowledge-action gap’ and ‘value-action gap’. But neither is household energy consumption driven primarily by financial incentives and the rational pursuit of material interests. In fact, people sometimes respond in unexpected and undesirable ways to rewards and sanctions intended to shift consumers’ cost–benefit calculus in favour of sustainable behaviours. Why is this so? Why is household energy consumption and conservation difficult to predict from either core values or material interests? By drawing on critical insights from behavioural economics and psychology, we illuminate the key cognitive biases and motivational factors that may explain why energy-related behaviour so often fails to align with either the personal values or material interests of consumers. Understanding these psychological phenomena can make household and community responses to public policy interventions less surprising, and in parallel, can help us design more cost-effective and mass-scalable behavioural solutions to encourage renewable and sustainable energy use among consumers.