Working Paper: NBER ID: w23553
Authors: Meredith Fowlie; Catherine Wolfram; Anna Spurlock; Annika Todd; Patrick Baylis; Peter Cappers
Abstract: We study default effects in the context of a residential electricity pricing program. We implement a large-scale randomized controlled trial in which one treatment group is given the option to opt-in to time-based pricing while another is defaulted into the program but allowed to opt-out. We provide dramatic evidence of a default effect – a significantly higher fraction of households defaulted onto the time-based pricing plan enroll in the program, even though opting out simply involved making a phone call or clicking through to a website. A distinguishing feature of our empirical setting is that we observe follow-on behavior subsequent to the default manipulation. Specifically, we observe customers’ electricity consumption in light of the pricing plan they face. This, in conjunction with randomization of the default provision, allows us to separately identify the electricity consumption response of “complacent” households (i.e., those who only enroll in time-based pricing if assigned to the opt-out treatment). We find that the complacent households do reduce electricity use during higher priced peak periods, though significantly less on average compared to customers who actively opt in. However, with complacents comprising approximately 75 percent of the population, we observe significantly larger average demand reductions among consumers assigned to the opt-out group. We examine the extent to which the behavioral responses we observe are consistent with a standard model of switching costs, or with alternative mechanisms including inattention, and preferences constructed based on contextual features of the choice setting.
Keywords: default effects; electricity pricing; randomized controlled trial; consumer behavior
JEL Codes: D03; L51; L94; Q41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Default enrollment (I29) | Increased participation in the pricing program (L11) |
| Default enrollment (I29) | Reduced electricity use during peak periods (L97) |
| Increased participation in the pricing program (L11) | Reduced electricity use during peak periods (L97) |