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Paying for Good Deeds: Using Financial Incentives to Achieve Energy Efficiency

This project found that some behavioral nudges can cut energy consumption significantly. What worked well: subjects who set realistic goals, especially when they also received neighbor comparisons. What didn't: information about saving energy with no other nudge, rank comparisons and financial incentives.
Household savings based on percentage reduction goals. X axis, at zero, is months from start of enrolling.
Year Started: 
2010

This project's researchers conducted experiments with utility customers in Chicago and Massachusetts to determine the extent to which financial incentives, and reward schemes in particular, can achieve energy efficiency. Partnering with a leading energy efficiency company, Efficiency 2.0, the researchers found that some behavioral nudges, when well designed, can cut energy consumption significantly. Goal setting was particularly potent. In Chicago, households saved on average about 8 percent immediately after adoption, but savings over a 12 months period slipped to just 2-3 percent. Households that chose realistic goals of 1-15 percent reduction, saved almost 10 percent, and the effect persisted. Households that chose unrealistic goals saved for a few months, then gave up.

Families that joined the program for the financial incentives saved only for a limited period of time, though this may have been due to poor construction of the rewards. The experiment in Massachusetts showed that giving families information about how they can save energy is not sufficient for significant savings. Also, combining goal setting and neighbor comparisons worked very well. Rank comparisons did not work. With support from NRDC, this work has continued in a large program implemented by OPower and Facebook.

Publication:  Goal setting and energy conservation Journal of Economic Behavior & Organization 107 (A), 209-227 Harding, M., Hsiaw, A., (2014)

Final Report: Paying for Good Deeds: Using Financial Incentives to Achieve Energy Efficiency (198KB PDF)

Matthew Harding