Prospect theory and energy efficiency

By Garth Heutel. Journal of Environmental Economics and Management, 2019

111 citations recorded by the source corpus.

Investments in energy efficiency entail uncertainty, and when faced with uncertainty consumers have been shown to behave according to prospect theory: preferences are reference-dependent and exhibit loss aversion, and probabilities are subjectively weighted. Using data from a choice experiment eliciting prospect theory parameters, I provide evidence that loss-averse people are less likely to invest in energy efficiency. Then, I consider policy design under prospect theory when there are also externalities from energy use. A higher degree of loss aversion implies a higher subsidy to energy efficiency. Numerical simulations suggest that the impact of prospect theory on policy may be substantial.

Subfields: Economics and Econometrics, Renewable Energy, Sustainability and the Environment

View Paper: https://www.semanticscholar.org/paper/4ae12afcedb346f3e638f848911d40b14503ee5d

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In Economics and Econometrics

1. Xavier Gassmann
2. Thomas Meissner
3. Corinne Faure
4. J. Schleich
5. David Popp

In Renewable Energy, Sustainability and the Environment

1. Xavier Gassmann
2. Thomas Meissner
3. Corinne Faure
4. J. Schleich
5. Patrik Thollander
6. T. Fleiter

Citations in the corpus

• A large-scale test of the effects of time discounting, risk aversion, loss aversion, and present bias on household adoption of energy-efficient technologies (2019, methodology): “However, we did incentivize gains and losses; in contrast, Heutel (2017) incentivized gains only.”