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Cost misperceptions and energy consumption: Experimental evidence for present bias and biased price beliefs

Madeline Werthschulte and Andreas Löschel ()

No 111, MEP Discussion Papers from University of Münster, Münster Center for Economic Policy (MEP)

Abstract: The aim of this study is to link variation in energy cost misperceptions to variation in households' energy consumption. The focus is on two sorts of misperceptions: First, present biased discounting of future energy costs and second, biased energy price beliefs. By running an artefactual field experiment with a representative sample of 711 participants, we gather incentivized measures of these two misper- ceptions and observe participant's revealed electricity consumption. Our main finding is that participants with present bias are predicted to consume on average 9% more electricity than participants with time-consistent discounting. Our results further suggest that neither the true marginal electricity price nor the expected marginal electricity price can predict electricity consumption. Taken together our results raise doubt in the effectiveness of classical price based policies in reducing households' energy consumption.

Keywords: energy consumption; present bias; price beliefs; field experiment (search for similar items in EconPapers)
JEL-codes: C93 D15 D81 D91 Q49 (search for similar items in EconPapers)
Date: 2019
New Economics Papers: this item is included in nep-cbe, nep-ene and nep-exp
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