Social Norm Feedback

Norms and Transparency

People may not know how much energy they use or how it compares with their neighbors’ use. Thaler and Sunstein describe how Opower, owned by Oracle at the time of their account, created a vivid nudge in the form of the Home Energy Report, which gives customers a clear sense of how their utility bill compares with the norm in their neighborhood, and what they might do to save energy.27 The authors discuss a study by economist Hunt Allcott, who estimates that the effect of sending these reports is reduction of consumption by about 2 percent.28 Is that a lot or a little? Two percent may not seem like a big deal, but small reductions can add up, especially in the use of power, which represents a large portion of emissions (about 20 percent in the United States).29 In addition, Allcott finds that this reduction is roughly the same as what would be achieved by a temporary price increase of 11 to 20 percent. The key thing about this is that it is achieved at virtually no cost, since the information is included in the regular bill received by the customer.

Here’s a related idea: voluntary participation programs designed to assist not individual consumers, but companies both large and small. With such programs, public officials do not require anyone to do anything. Instead, they ask companies whether they would be willing to follow certain standards that are expected to have desirable effects on the environment. The basic idea is that even in a free market, companies often fail to use the latest products, and sometimes government can help them to make money while also reducing pollution.