Tuesday, May 17, 2011

Japan's energy future - Finding the opportunities in trying times

Image by AFP/Getty Images via @daylife
It’s no surprise that the recent earthquakes and tsunami in Japan, along with the fear of a nuclear meltdown at the Fukushima Daiichi nuclear plant, have caused the Japanese government to reevaluate their energy future. Japan’s Prime Minister Naoto Kan announced on May 10th that they will curb current plans to build more nuclear reactors, and will focus instead on renewable energy sources, such as wind, solar, and hydro. But while the government thinks about changing the supply side of energy, it’s important to remember that the biggest bang for the energy conservation buck is on the demand side, through behavior change – how do you motivate people to use less energy as they go about their daily lives?

One of the primary types of appeals used in community interventions is the fear appeal – a persuasive message that aims to frighten the audience into engaging in the desired behaviors, by showing them the negative consequences that could occur if they don’t. It struck me that Japan’s situation is one that would be ripe for this kind of messaging. Japan is located on an extremely seismically active piece of real estate, and if they need to build more nuclear plants to meet increasing energy needs, there’s no way to be sure that Fukushima Daiichi won’t repeat itself. Certainly the threat of nuclear disaster should inspire the kind of motivation that is needed to seriously change behavior. But do fear appeals work, and if they do, under what circumstances are they effective, and when are they actually counter-productive?

One important component seems to be the amount of fear elicited. The more frightening a message is, the more effective it is – however, insert big BUT here: It turns out that fear is not the sole component of an effective fear appeal. The other essential ingredient is a feasible recommended course of action to combat the threat – in other words, you can’t just scare people by saying “If we don’t use less energy, we run the risk of nuclear disaster.” Research indicates that giving people this kind of message will lead to rejection of and resistance to this message, probably because of a need to counteract the fear, without any know way of doing so. In fact, it is here that a “more fear” tactic might backfire – the least effective messages are those that are high on fear, but low on behavioral recommendations. A more effective message would probably be something like, “If we don’t use less energy, we run the risk of nuclear disaster. So, make sure you lower the thermostat 2 degrees, turn off the lights when you leave the room, and run your dishwasher during off-peak hours.” If the audience has that kind of attainable behavior to help alleviate the threat, the combination of fear and action can really produce results. However, for the reasons described above and others, constructing an effective fear-based message is a tricky thing, and runs the risk of being more counter-productive than useful.

There is also some controversy over the ethics of using emotional appeals – even if they work, is it fair to play on people’s emotions, rather than their logic, when trying to elicit a behavior from them? That may be an issue for another day, but it’s certainly an issue worth thinking about.

The Japanese government does not appear to be using fear appeals, and that is a good thing. It would probably be seen as exploitative in a time when the message they really need to be sending is one of national unity, demonstrating that the government has a plan, and if everyone in Japan comes together for a common goal, they can overcome any disaster.

The good news is, that is exactly what the Japanese people are doing. They are recognizing the importance of energy savings, not only to prevent major problems like nuclear disaster, but to avoid the more minor inconveniences like rolling blackouts. Japan’s largest utility, TEPCO, says that its customers are doing such an incredible job saving energy that their predicted shortfall has reduced significantly, and they are “ceasing implementation of rolling blackouts in principle” (presumably meaning it’s a tentative cessation).

How have they been so successful? In the wake of the crisis, it turns out the Japanese people have banded together, out of national pride and a can-do attitude, and decided to curb their energy use. The concept of setsuden, an energy saving culture, has emerged, and the people are embracing it. Everywhere you turn in Japan now, residents and companies are posting posters, starting incentive programs, and generally rallying around the idea of energy efficiency. It's a spirit of optimism, motivation, and forward thinking. It's working extremely well. And it's much more rewarding than fear.

Friday, February 25, 2011

Loss Aversion and Energy Conservation - Can We Win for Losing?

Before we get to the fascinating psychological phenomenon that is loss aversion, let's talk about Behavioral Economics. It's a field that's growing like crazy, and in coming posts I will be tackling different behavioral economics principles, and how we can use them to motivate people to conserve energy. 

Traditional economic theory
says that people are rational and logical, and because of that, the decisions we make are calculated for our own best interest. In other words, given the opportunity, we will always maximize our own gains. In this perspective, humans are thought of as Homo

But people are
clearly not always rational. We make decisions when we’re emotional, we have all kinds of biases, we are often generous and altruistic in ways that benefit others at a cost to ourselves. Behavioral economics incorporates psychological principles into traditional economics, and tries to understand in a predictable, systematic way when and why we don’t always make the rational decision and do what’s best for ourselves.

A fantastic example of a behavioral economic principle is loss aversion, or the general preference people have for avoiding losses.
So, here you’re looking at a graph. 

On the x-axis is loss and gain, usually in terms of money. If you gain money, you shift to the positive side of the x-axis, and with a loss, you shift to the negative side. Then the Y-axis is “value”, which you can think of as happiness. Picture yourself starting at the intersection of these axes, with your current level of happiness and your current amount of money. Now, think of yourself gaining $100, so moving right along the X axis, and therefore gaining some happiness and moving up the Y axis. This is represented by the pink dot on the upper right. Now conversely, think of yourself losing $100, and therefore losing happiness. This is represented by the dot on the lower left.
Traditional economics predicts that that $100 is worth an equal amount of happiness to you, whether you win it or lose it. If you gain $100 you go up 10 points on the happy scale, if you lose $100 you go down 10 points, and that’s what’s shown on the blue prediction line.

Well, it turns out that’s not so much the case. Here we have the same graph, but instead of the prediction line in the last slide, we have the real results of experimental data, by the behavioral economics geniuses Daniel Kahneman and Amos Tversky (cites below). Tons of studies have been conducted to get at this relationship between gain, loss, and happiness. And it turns out, gaining $100 may make us pretty happy, but LOSING $100 makes us REALLY, disproportionately upset. A loss gives us more displeasure than an equivalent gain gives us pleasure, and so it’s the case that humans are loss averse – we want to avoid losses even more than we want to gain gains.
Knowing that led experimenters to predict that whether we frame a situation in terms of loss or gains will affect people’s decisions. To test this, we often use what’s called the Asian Disease Problem. It goes a little something like this:

Half of the participants are given the choices on the LEFT, which are framed in terms of gains. Note that these choices, Program A and Program B, have the same expected value, which is that on average, 200 people will be saved. But given these choices, about ¾ of people, or 72%, choose the sure thing, to save 200 people. That’s not really surprising, because people are generally risk averse.

The other half of the participants are given the choices on the RIGHT, which are framed in terms of losses. These choices, C and D, ALSO have the same expected value (200 people will be saved). But given these options, over ¾ of the people chose the risk, rather than the sure thing. Given our risk aversion, this is interesting, no?

But the critical comparison is really Program A vs. Program C – the simple shift in phrasing, from “200 people will be saved” to “400 people will die”, even though they mean the exact same thing in this context, made an incredible difference in the decision. People who saw the loss frame were much more willing to be risky, to gamble with lives, to avoid that loss.
This is important to know. It means that the way we frame the information we give to people makes a big difference in how they’re going to respond to it.

So how should we take advantage of this for energy efficiency? Smart meters and in-home feedback displays are one clear possibility - rather than showing people their costs racking up, we can show them that, starting with a budget, their money is going down. SRP, my utility here in Arizona, has implemented a pre-paid card system that works with an in-home display to show how much money you have remaining, and it's actually stressful to see it get closer to zero (I've been there). Cycling through the displays, I found that piece of information to be more motivating than the other information on how much I'm spending per hour, how many killowatts I've used this month, and so on. And it may not just be me; SRP pre-paid customers tend to save ~$12/month on energy, compared to customers who receive a normal bill. These savings probably result from a combination of immediate feedback (see last post) and loss aversion.

Then there are the messages we use to encourage consumers to purchase energy saving products. Rather than saying, "Replacing all of your normal light bulbs with CFLs will save you $7/month," the message could be, "If you don't replace your light bulbs with CFLs, you're losing $7/month."

I'd love to get your ideas on how loss aversion can be used to encourage conservation. Such a powerful strategy can surely have important implications for reducing energy use.

Kahneman, D., & Tversky, A. (1984). Choices, values, and frames. American Psychologist, 39(4), 341-350.
Tversky, A., & Kahneman, D. (1981). The framing of decisions and the psychology of choice. Science, 211(4481), 453-458.


Monday, January 3, 2011

Leafy Green Feedback

People these days are looking to conserve energy for a wide variety of reasons - financial, environmental, concern about dependence on foreign oil, generic anti-wastefulness, or (let's face it) just because it's what everyone else is doing. But it can be really hard for would-be conservers to make informed decisions on how to save if they don't know where their energy is being spent. That bill at the end of the month doesn't contain a whole lot of information, and that's a problem.

It all comes down to granularity, or the resolution of the information we receive about our use. A utility bill at the end of the month is very low-resolution, low-granularity - it's whole-home usage over the course of an entire month. We can't see which days we use more (weekends? weekdays?), which times we use more (probably evenings?), which appliances use more (TVs? Dryers? Refrigerators?). I dunno, do you?

Without this information, it's hard to know where to cut back, and psychology researchers have known this for a long time. Many studies have been conducted in which people are given more granular feedback on their energy use - daily, hourly, or even real-time - and oh, the savings, how they pile up. In a study by Petersen et al. at Oberlin college (2007), the authors set up an energy-saving competition among the dorms. All of the dorm residents had access to energy feedback (which was already an improvement for them, since dorm residents don't pay their energy bills, and so never see any information on energy use). Some of the residents were given their data on a weekly basis, while others could access their real-time energy use data online. The real shocker of this study, to me, was how much all of the dorms saved - even the low-resolution dorms showed a 31% drop in energy usage, particularly impressive because dorm residents have no control over their thermostats. But this saving shot up to an almost unbelievable 55% for the high-resolution dorms. These savings are on the high end, but in every study I'm aware of, the finding is the same: Feedback leads to conservation.

Clearly, there's a lot to this granularity thing. Can you imagine what it would be like if we could all see our own home's real-time energy use, or even better, see it at the level of an individual room or even appliance? When it comes to cleaning up our energy usage, the devil is in the details, and the better we can see him, the better we can exorcise him.

The most effective feedback systems should also make the information relevant to the user. Not all of us know what a kWh (kilowatt hour) is, or what it means to be using 50 of them instead of 40 of them. But if this feedback were in the form of dollars out of our pockets, or CO2 being released into the atmosphere, or money into the hands of foreign nations, we would probably be a little more personally motivated to do something to reduce it.

Enter the smart meter. All over the nation, utilities are replacing regular energy meters with "smart meters", which allow better communication between the home and utility, and provide information every hour (or even every 15 minutes, for some). If you have one, it's likely your utility's website will allow you to go online and see your energy use broken down by day or even more finely, rather than by month.

This is an embarrassing admission for someone who studies energy efficiency, but I just found out that the townhouse I've been renting for two years has a smart meter. It was upgraded at some point and I never knew, and it's opened a world of information. See, here in Arizona, energy bills notoriously double or triple during the summer because A/C use shoots up. But I just went online and saw that on days where the temperature goes up, my energy use goes down, which makes absolutely no sense...of course, it would be great to have more granular information and see if the energy use has anything to do with A/C, but I can't tell that based on the information given. On the other hand, I've learned that my roommates and I need to be much more careful to consider time of use, because on some days almost half of our energy use has been during on-peak hours. Yipes.

To find higher-resolution information about your own home's energy use, check and see if your home has a smart meter (you can either call the utility or check your monthly statement). If you don't have one, you can ask if and when they plan on installing them in your neighborhood, because chances are they may be soon. And if still not, you can look into purchasing a TED or a Kill-A-Watt to show even finer granularity.

I forget who, but someone suggested that an energy bill should look like a phone bill - device, times, amounts, cost. I couldn't agree more. If it did, no matter our personal motivation, we would all be much more able to make informed decisions to curb our energy use.