Default Effects and Follow-On Behavior: Evidence from an Electricity Pricing Program

50 Pages Posted: 4 Jul 2017 Last revised: 11 May 2018

See all articles by Meredith Fowlie

Meredith Fowlie

University of California, Berkeley

Catherine D. Wolfram

University of California, Berkeley - Economic Analysis & Policy Group; National Bureau of Economic Research (NBER)

Anna Spurlock

University of California, Berkeley - Lawrence Berkeley National Laboratory (Berkeley Lab)

Annika Todd

University of California, Berkeley - Lawrence Berkeley National Laboratory (Berkeley Lab)

Patrick Baylis

Stanford University

Peter Cappers

University of California, Berkeley - Lawrence Berkeley National Laboratory (Berkeley Lab)

Date Written: June 2017

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.

Suggested Citation

Fowlie, Meredith and Wolfram, Catherine D. and Spurlock, Anna and Todd, Annika and Baylis, Patrick and Cappers, Peter, Default Effects and Follow-On Behavior: Evidence from an Electricity Pricing Program (June 2017). NBER Working Paper No. w23553. Available at SSRN: https://ssrn.com/abstract=2996309

Meredith Fowlie (Contact Author)

University of California, Berkeley ( email )

310 Barrows Hall
Berkeley, CA 94720
United States

Catherine D. Wolfram

University of California, Berkeley - Economic Analysis & Policy Group ( email )

Berkeley, CA 94720
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Anna Spurlock

University of California, Berkeley - Lawrence Berkeley National Laboratory (Berkeley Lab) ( email )

1 Cyclotron Road
Berkeley, CA 94720
United States

Annika Todd

University of California, Berkeley - Lawrence Berkeley National Laboratory (Berkeley Lab) ( email )

1 Cyclotron Road
Berkeley, CA 94720
United States

Patrick Baylis

Stanford University ( email )

Stanford, CA 94305
United States

Peter Cappers

University of California, Berkeley - Lawrence Berkeley National Laboratory (Berkeley Lab) ( email )

Milan, NY 12571
United States

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