A large-scale test of the effects of time discounting, risk aversion, loss aversion, and present bias on household adoption of energy-efficient technologies

Abstract

This paper empirically and jointly analyses the relations between standard time discounting, risk aversion, loss aversion, and present bias and household stated adoption of low to high stake energy efficiency technologies (EETs): light emitting diodes (LEDs), energy-efficient appliances, and retrofit measures. The analysis relies on a large representative sample drawn from eight European Union countries. Preferences over time, risk, and losses were elicited and jointly estimated from participant choices in incentivized, context-free multiple price list experiments. The findings from econometrically estimating EET adoption equations provide some support for the hypothesis that individuals who are more loss-averse, or more risk-averse, or who exhibit a lower time discount factor are less likely to have adopted EETs. Yet, some of the results (significance levels and effect sizes) appeared sensitive to the addition of covariates, which may be an indication of bad controls. Finally, omitting one or several of the parameters capturing preferences over time, risk, and losses when estimating the EET adoption equations, did not appear to cause omitted variable bias.