Default vs. Active Choices: An Experiment on Electricity Tariff Switching

Ayse Atasoy and Reinhard Madlener

No 7/2020, FCN Working Papers from E.ON Energy Research Center, Future Energy Consumer Needs and Behavior (FCN)

Abstract: In distinct decision environments, consumers often fail to financially optimize their decisions. In liberalized electricity markets, consumers frequently do not optimize their electricity choices and stick with the default providers instead, despite the ability to choose among an increasingly large set of electricity suppliers and benefit from lower cost options. In this paper, we study the effect of different contextual features of the choice environment (i.e., default and active choice enforcement) and search costs (i.e., high and low) on the quality of electricity contract choices, with the help of a randomized controlled laboratory experiment. We provide evidence that the default contract rule lowers decision quality compared to the active decision rule in both search cost environments. Default rules lower the quality of contract choices especially for the individuals with lower cognitive ability. Contrary to the expectations, we observe that the number of alternatives has no effect on the quality of electricity contract choices. Our findings have important implications for regulatory rule setting in the electricity market.

Keywords: Contract Switching; Electricity Contracts; Default Rules; Search Costs; Decisionmaking (search for similar items in EconPapers)
JEL-codes: C91 D12 D91 Q48 (search for similar items in EconPapers)
Pages: 31 pages
Date: 2020-05
New Economics Papers: this item is included in nep-com, nep-ene, nep-exp and nep-reg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

Downloads: (external link)
https://www.fcn.eonerc.rwth-aachen.de/global/show_ ... p?id=aaaaaaaaaqotejo Full text (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ris:fcnwpa:2020_007

Access Statistics for this paper

More papers in FCN Working Papers from E.ON Energy Research Center, Future Energy Consumer Needs and Behavior (FCN) Contact information at EDIRC.
Bibliographic data for series maintained by Hendrik Schmitz ().