Sunday, April 06, 2008

Sunday dollars+sense: It's time for a 'nudge'

It has started to get painfully cold in Canberra early. Many times a day in our homes we need to make carbon-relevant decisions, such as whether to push our heaters up a notch, whether to delay turning them on, and whether to wear a jumper instead.

And whenever we make those decisions we are likely to err on the side of immediate comfort. We know we won’t be getting our energy bills for a while. We can use less tomorrow.

The electricity authority's promised smart meters might help. We will be able to find out how much power we are using. But they might not help by much.

What we need is a “Nudge”, which happens to also be the title of a new book about such ideas by two behavioural economists Cass Sunstein and Richard Thaler of the University of Chicago...

Thaler has told the New York Times that when he adjusts his thermostat he is “only vaguely aware” of how much it costs him.

But he says if the thermostat was programmed to tell him immediately in dollars and cents how much he was spending, the effect would be more powerful.

It would be more powerful still if he knew how his energy use compared to others.

In Australia we give people this information on their bills, and Thaler says it cuts the energy use of the hogs.

But according to a Californian study it also encourages the frugal among us to use more.

The study found a simple way of stopping that. It printed a smiley face on the accounts of the low energy users, and a frown on those of high users.

It was a “nudge”, or as Thaler and Sunstein also call it, a piece of “libertarian paternalism”.

Thaler’s proposed “save more tomorrow” scheme is another one. Americans who put off saving until tomorrow are offered the opportunity to sign a piece of paper agreeing to do just that, automatically out of their next pay rise. It’s a painless nudge.

But back to the cold.

Thaler says Southern California Edison has encouraged its consumers to save energy by giving them an Ambient Orb, a little ball that glows red when they are using lots of energy but green when they are not.

It has cut their peak energy consumption by 40 percent.

My children would love one. And I would love the nudge. The colder things get the more I’ll need it.


Richard H. Thaler and Cass R. Sunstein, Nudge - Improving Decisions About Health, Wealth, and Happiness, Yale University Press, available Mar 31, 2008 ISBN: 9780300122237

Thaler and Sunstein's website:

Richard H. Thaler and Cass R. Sunstein,
A gentle prod to go green. Turning wishes into actions a matter of showing people the way, Chicago Tribune, April 6, 2008

Richard H. Thaler, Shlomo Benartzi,
Save More Tomorrow: Using Behavioral Economics to Increase Employee Saving, Journal of Political Economy, Vol. 112, No. 1, pp. S164-S187, February 2004

Richard H. Thaler, Cass R. Sunstein,
Libertarian Paternalism Is Not an Oxymoron, The University of Chicago Law Review Volume 70 Fall 2003, Number 4

Richard H. Thaler, Cass R. Sunstein,
Libertarian Paternalism, American Economic Review, Vol 93, No. 2, May 2003