Geeking out on behavioral economics…
A few statements in meetings over the past few weeks suggested that more a rating or score and a better loan product are all we need to drive more homeowners to improve the efficiency of theirs homes. That ain’t so.
As rebutted by a couple of manufacturers who have a strong interest in selling products to increase the efficiency of homes. “People aren’t buying ROI.” They are right.
It’s time to stop propagating a couple of myths surrounding what makes most people buy–or not buy–home energy upgrades. The common assumptions are 1) if we give people good information and/or 2) if they can find a way to pay for the improvement, including with financing that will be paid for by the energy savings they’ll move ahead.
Such thoughts drive many programs, and unfortunately some contractors, too. I say “unfortunately” because the assumptions just aren’t valid. Successful contractors already know this explicitly or implicitly.
Behavioral economics tells us that simply proving good information and financing doesn’t lead to action.
Don’t get me wrong—I believe we should have good information. And we also know that access to financing contributes to bigger more comprehensive projects. Both these things are good. But for the average consumer, they are not enough. As Amory Lovins said, “People don’t want heating fuel or coolant, people want cold beer and hot showers.” If we want to scale, if we want to see widespread action, we have to pay attention to what really motivates people and what stops them from moving forward.
To do that, we need need to have questions to find out what will really drive each homeowner to action. And we need to pay attention to behavioral economics and what behavioral research has shown drives our decisions and choices—including choices consumers make about whether to spend money to improve their homes. Ignoring these principles means we risk wasting time, wasting money, and missing big opportunities both as businesses and in meeting program and policy goals.
People don’t like to lose things. We are affected by loss aversion, with research suggesting, for example, that people prefer to avoid losing $100 more than gaining than prefer to win $100. Some studies suggest that losses are at least twice as powerful, psychologically, as gains. This has clear implications for energy-efficiency where we have to spend (lose) money to save money (energy). This tendency gets in the way of economic arguments for energy-efficiency.
The status quo bias, points to the fact that we’re often more comfortable where we’re at than with the idea of change. (Some research suggests loss aversion may really be the inertia of the status quo.)
I’ll conclude this post with a mention of single action bias which I’ve seen hurt home energy-efficiency efforts. This is a very big deal for approaches advocating “screening audits” or audits with a simple direct install measures. People often responds to uncertain and risky situations, with a bent toward making the decisions simple and direct. Compound this with a perceived threat or harm, and people are likely to fall back on a single action, even when it provides only a small incremental benefit or risk reduction. And then feeling better, they often take no further action.
Frequently programs and contractors alike will offer “small concessions” to homeowners something simple they can do with the hope of moving them forward. Sounds logical. Unfortunately, these simple steps are frequently seen be homeowners not as a first step, but as a last step. I got an audit—problem solved! They wrapped my water heater—problem solved! I don’t need to do more (even when the big performance issue in the house remains completely untouched).
Now, sometimes small steps do lead to big steps. But it’s important to realize the full cost of the small steps. If these small concessions are the focus, we must take care to point homeowners to the next steps and then facilitate moving them there.
There are many decision-making concepts that come into play. And they’re worth exploring.
Some further reading on the topic:
- Predictably Irrational by Dan Ariely1 (or start with Ariely’s TED Talk.)
- To Sell is Human by Daniel Pink1 (see also the link to a Pink podcast)
- Thinking, Fast and Slow by Daniel Kahneman1
- Behaving Ourselves: How Behavior change Insights Are Being Applied to Energy Efficiency Programs
1Dan, Daniel, Daniel. I’m seeing a name pattern emerging! Does anyone have any good reading recommendations by authors named Beth, Edmund, or Mary?