Energy Labels and Heuristic Decision-Making: The Role of Cognition and Energy Literacy

30 Pages Posted: 28 Dec 2020

See all articles by Shutong He

Shutong He

Institute for Environmental Studies, Vrije Universiteit Amsterdam

Julia Blasch

Vrije Universiteit Amsterdam - Institute for Environmental Studies (IVM)

Pieter van Beukering

VU University Amsterdam - Institute for Environmental Studies (IVM)

Junfeng Wang

Chinese Academy of Sciences (CAS) - State Key Laboratory of Biochemical Engineering

Date Written: December 23, 2020

Abstract

To overcome the inefficiency in household energy use, energy labels with a grade-like categorical efficiency rating-scale are widely used across the globe. However, presenting energy efficiency information in categories has been found to induce heuristic rather than rational decision-making, known as the "class valuation effect": consumers value the classes, while being inattentive to the actual energy use of the respective appliance. Although replacing the categorical by a continuous scale could eradicate this effect, it has not been formally examined to what extent a continuous scale promotes more rational decision-making. This study investigates whether visualising energy efficiency using a continuous-scale instead of a categorical-scale energy label increases consumers’ awareness of the energy performance of appliances. We experimentally examine this question in an online survey with randomised decision tasks conducted in China and the Netherlands, two countries using energy labels with categorical rating-scale whose populations differ in cognitive style and energy literacy (energy-related knowledge, attitudes, and behaviours). We find that continuous-scale labels are overall more effective in promoting rational decision-making. For Dutch respondents the effectiveness depends on their holistic cognitive tendency and the type of comparison they are faced with, whereas the Chinese sample is not sensitive to these moderators. Moreover, we find that the different aspects of energy literacy have opposing influence on rational choices: possessing knowledge related to daily-life energy use increases the likelihood of rational decisions, while energy-saving attitudes and behaviours encourage individuals to opt for more energy-efficient appliances even when it is not economically optimal. Based on the results, we suggest to represent energy efficiency on continuous scales as an auxiliary visual information to support purchase decisions. In energy education and information programmes, emphasis should be put on energy knowledge that directly links to daily life, which is well translated into consumers’ conscious decisions.

Keywords: Energy efficiency, Energy label, Household decision-making, Information processing, Heuristics, Cognitive style, Energy literacy

JEL Classification: D12, D91, Q41

Suggested Citation

He, Shutong and Blasch, Julia and van Beukering, Pieter and Wang, Junfeng, Energy Labels and Heuristic Decision-Making: The Role of Cognition and Energy Literacy (December 23, 2020). USAEE Working Paper No. 20-481, Available at SSRN: https://ssrn.com/abstract=3754475 or http://dx.doi.org/10.2139/ssrn.3754475

Shutong He

Institute for Environmental Studies, Vrije Universiteit Amsterdam ( email )

De Boelelaan 1105
Amsterdam, 1081HV
Netherlands

Julia Blasch (Contact Author)

Vrije Universiteit Amsterdam - Institute for Environmental Studies (IVM) ( email )

De Boelelaan 1087
Amsterdam, 1081HV
Netherlands

Pieter Van Beukering

VU University Amsterdam - Institute for Environmental Studies (IVM) ( email )

De Boelelaan 1115
Amsterdam, 1081 HV
Netherlands
+ 31 20 444 9555 (Phone)
+ 31 20 444 9553 (Fax)

Junfeng Wang

Chinese Academy of Sciences (CAS) - State Key Laboratory of Biochemical Engineering

52 Sanlihe Rd.
Datun Road, Anwai
Beijing, Xicheng District 100864
China

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