It's Hard to Nudge
There’s a notion that government can ‘nudge’ people to do the right thing. Big examples include letting people opt-out of organ donorship, rather than opting in (rates of organ donorship go from 10-20% to 80-90%, which is pretty clearly a better thing than putting those organs in the ground or crematoria). Another classic example was participation in 401k retirement accounts, but somehow after the market meltdown, that’s getting less press.
A smaller example is how telling people they’re using more power than others, their power consumption declined. Awesomeness, right? Conservation is the easiest, freest power you can get. Remember that a 150 watt lightbulb consumes twice as much power as your laptop. And most of that goes to waste heat, but I digress. Let’s go back to that nudge study, described in this Slate article:
In a study evaluating the program’s effectiveness, Opower researchers compared power use before and after the HERs began arriving, and further compared this change with a group of control households that never received the reports. On average, the HER households reduced their consumption in the months that followed by a little less than 2 percent. Not bad, but probably not enough to save the planet.
One problem with this approach is that we all define “better” differently, as a new study emphasizes. UCLA economists Dora Costa and Matthew Kahn analyzed the impact of an energy-conservation program in California that informed households about how their energy use compared with that of their neighbors. While the program succeeded in encouraging Democrats and environmentalists to lower their consumption, Republicans had the opposite reaction. When told of their relative thrift, they started cranking up the thermostat and leaving the lights on more often. … One explanation is that many conservatives don’t believe that burning energy harms the planet, so when they learn that they’re better than average, they become less vigilant about turning the lights off. That is, they’re simply moving closer to what they now know is the norm.
People are complex. It’s hard to know what matters to people, and it’s hard to know what additional information will do to a market. As Hayek pointed out, this is why central planning fails. The planners can’t know all.
And when we start nudging people, lots more chaos will emerge. Planners don’t become better by giving people opt-outs from their planning. And while nudging is better than authoritarianism, it’s still worse than a government which does only what it needs to do.
In the case of energy consumption, a market is emerging to help people see what drives their energy consumption and environmental impact. Better to let a thousand startups bloom, and let the creativity of engineers and those who care deeply help people drive down their electricity use. Everyone else will pay for their long-burning lights, and if electricity is fairly priced, then that’s their choice.
The paper is at “Energy Conservation “Nudges” and Environmentalist Ideology: Evidence from a Randomized Residential Electricity Field Experiment,” National Bureau of Economic Research.