Tail-risk in real-time electricity pricing: experimental evidence on preferences, perception and comprehension

Lata Gangadharan (), Elisabeth Gsottbauer, Gordon Leslie and Madeline Pretto

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: Do households comprehend the nature of tail-risks inherent to real-time electricity pricing (RTP) plans? We develop a randomized and incentivized experiment calibrated to real-world price distributions and find that (a) probabilistic risk disclosure, beyond that offered in standard marketing materials, elicits greater demand for real-time pricing products relative to a low-risk fixed-price alternative, (b) products with tail-risk protection might not be highly sought, and (c) the experience of a RTP bill shock drives choice away from RTP. Personal experience receiving a tail price plays a greater role in risk comprehension and moving subsequent choices toward less risky plans than receipt of an additional ex-ante probabilistic risk disclosure. We discuss the implications these findings may have for regulators with a consumer protection mandate.

Keywords: consumer protection; dynamic pricing; experimental economics; information provision; retail electricity markets; risk perception; tail-risk (search for similar items in EconPapers)
JEL-codes: C91 D18 D81 L94 Q41 (search for similar items in EconPapers)
Pages: 16 pages
Date: 2026-09-30
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Published in Electricity Journal, 30, September, 2026, 39(3). ISSN: 1040-6190

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