#014 On Cognitive Bias: Part V
Why you consume more energy than you actually need?
Hello,
As you might already know Nash Notes started as an initiative to provide succinct and practical knowledge about money, personal finance, psychology and various other interconnected socio-economic ideas.
Going forward, we want to build a community of people who are curious about those multidisciplinary ideas. So, we are pleased to announce that we will be inviting contributors for our platform to share their immense knowledge that could benefit our community. To kickstart our first ever guest contribution, we are delighted to have Pranusha Kulkarni with us for this edition.
Pranusha is a PhD candidate specialising in Public Policy at IIM Ahmedabad.
Having been an academic lawyer at TNNLU, Trichy, she is a UGC-JRF in Law & a gold medalist during her LLM at TISS Mumbai. She has extensively published on law on various platforms & is currently a Reviewer for ILI Law Review. She identifies herself as a science communicator who aims to communicate policy research to the non-academic audience in an accessible language. You can connect with her on LinkedIn/Twitter.
Picture this: You are a knowledgeable, environmentally conscious individual, but you often find yourself not switching off the lights/geyser at your home, when they are not in use. You know quite a bit about climate change & its ill effects, that energy is a scarce resource that needs to be conserved, & that you need to inculcate energy-saving behaviours in your everyday life. But, you still prefer a private cab over public transport. Despite all your knowledge about energy conservation, you still prefer taking the lift over climbing the stairs, & don’t really want to invest in energy efficient electrical devices, because they are relatively “expensive”.
Have you gotten into the “habit” of taking your electricity/car/bike for granted? Do you feel too “lazy” to replace your old tube lights/ incandescent bulbs with LEDs? Do you feel “uncomfortable” cycling, as compared to the lazed back comfort of relaxing in an AC car while travelling?
If your answers to these questions are in the affirmative, be assured that you are being governed by your cognitive biases. Is being governed by cognitive biases “abnormal”? Not at all! The neoclassical economists’ assumption that all of us are rational human beings that always maximise our profits (in this case, for example, we’ll always switch off the lights not in use at our homes, because it saves us our money) has been debunked long back by behavioural economists. Behavioural economics is the study of psychology of economic decision-making. That is to say, how our not-so-rational emotions play their part when we make our everyday decisions.
So, what do behavioural economists have to say about your bizarre behaviour of inefficient energy usage, despite you being well educated about energy conservation and climate change? According to Frederiks et al. (2015), you might be governed by one/some/all of the following 10 cognitive biases when it comes to your energy consumption patterns.
Status quo bias/Inertia: You are too used to things being as they are currently in your life. For example, you are accustomed to driving your car with the AC on even when it's not too hot outside, & you are too used to sleeping at night with the TV/lights on. Hence, you feel it’s too much of an effort now to change your habits.
Sunk cost effect: In order to justify your initial investment in your gadgets/vehicles, you keep using them even when they aren’t required, or even when they’ve become too old, obsolete & inefficient. Say, you drive your car to a neighbourhood grocery which is just a 10 min walk away, just because you’ve already spent money on your car. You keep using your 10 year old AC, just because replacing it with a new model appears “costly” to you in the short run.
Satisficing : You’re probably overwhelmed with too many different “energy-saving” options available when you go to buy an AC/refrigerator. You don’t really understand the jargon of energy efficiency used by the companies & their brands.So, to stop stressing your mind with all the extra technical information, you zero-in on the first available model that you see/hear about, without putting the extra efforts to deconstruct the technicalities of energy efficiency of each model. You want your buy to be just enough for your short term requirements, & not necessarily energy optimal in the long run.
Loss & risk aversion: You’re not sure what is the exact amount/kind of loss you are currently suffering due to your existing energy consumption habits. Eg: How much money are you losing on unwanted electricity usage, that you could’ve saved? – You don’t have an answer to this question, and this makes you prefer the status quo.
Also, you’re apprehensive about the risks attached to changing your energy consumption pattern – What if choosing public transport over your car is dangerous to your health? What if the energy efficient washing machine doesn’t clean your clothes well? What if the quality of the new model is low? Because you’re bogged down by these questions, you don’t want to shift from your favourite current brand X to the new unknown model Y.
Temporal & spatial discounting: You are more focussed on getting immediate, short-term gains, rather than on evaluating the long term benefits your energy consumption behaviour change might lead to. That is, you discount the future benefits (eg: long term monetary savings, preventing climate change) of your present behavioural modifications. So, you stick to your current inefficient energy consumption practices.
Low perceived trust: You think climate change is a hoax. You don’t really trust the UN, the Indian government, or the myriad other multilateral organizations that advocate for energy efficient consumption patterns. Or, you don’t believe in the efficiency of the new technology. So, you don’t do anything to change your status quo.
Availability bias: Your mom believes in the perceived efficiency of the outdated tech that still rules the roost at your home. Plus, you hear that “things are just fine” with the existing tech at your friends’, relatives’, & neighbours’ places. This anecdotal evidence is readily available to your mind. Why would you bother to change?
Normative social influence: You have seen your friends, relatives, or neighbours preferring private cabs to public transport. You want to maintain your social status & travelling in public buses/trains makes you look small among your social circles. So you stick to your inefficient energy consumption behaviour, knowing very well that it is unhealthy for you (financially) & the environment (long-term).
Intrinsic & extrinsic rewards: You are really not intrinsically motivated to save the environment by altering your energy consumption behaviour. Neither are there any extrinsic rewards/incentives for you to put that extra effort to change your existing behavioural patterns. You are content with the theoretical knowledge of climate change and the need for energy conservation, even as you carry on with your energy intensive lifestyle.
Free riding effect: You feel climate change cannot be stopped only by altering your behaviour, & that even if you change your behaviour, its effects on preventing climate change will be negligible, if not non-existent. Thus, you don’t change your behaviour. Also, you don’t really know whether your friends/relatives/neighbours are doing anything to save energy in their lives. So you assume “it’s not a problem”.
Now take a moment to contemplate, about the amount of money and energy you could save if you start deliberately avoiding these biases.
An electric vehicle costs more than a petrol/diesel based car, however, in the long run, the running cost is way lesser than a petrol/diesel based car. Running cost of an Electric Vehicle comes down to approximately ₹1/km and for a petrol based car with an average of 12km/L the running cost comes to approximately ₹8.3/L considering the price of petrol at ₹100/L. You are saving 8.3x on fuel. That’s a lot of money!. Similarly, switching off lights, getting rid of old electronics might not help you save a lot of money on the face of it but a little amount saved every month and invested can yield fruitful returns in the long term.
Therefore, you are not only just saving some money, but also saving energy and the environment just by altering your decision making. It’s a win-win situation! Don’t you think?
Now that you know your cognitive biases, would you consciously try to shift to energy efficient consumption patterns?
This article has been written as a part of the Science Communication initiative, & is based on a consumer-centric re-interpretation of the following scholarly article: Frederiks, E. R., Stenner, K., & Hobman, E.V. (2015). Household energy use: Applying behavioural economics to understand consumer decision-making and behaviour. Renewable & Sustainable Energy Reviews. Vol. 41. 1385-1394.
That’s it for today dear reader. See you next week.
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Awarness creating write up. Good one pranusha