Pay now, save later: Using insights from behavioural economics to commit consumers to environmental sustainability

Abstract

Focusing on delayed outcomes facilitates goal pursuit, but people exhibit a clear preference for immediate outcomes. Introducing immediate incentives (rewards or penalties) that are contingent on later performance can act as a commitment device to facilitate long-term goal pursuit. Here we apply these behavioural insights to the design of incentive-based electricity products that aim to commit consumers to conserve electricity. Such products are often effective in lowering consumption levels, but their uptake among consumers is relatively low. Across two experimental studies, we tested consumer acceptance of three novel incentive-based electricity products that applied a combination of rewards and penalties to commit consumers to conserve electricity in their homes. Results show that consumers were less likely to choose incentive-based products that offer an upfront reward (combined with a delayed penalty that applies upon failing to reach a conservation target). Our results further indicate that this may be the case because consumers perceived the upfront rewards as a less effective commitment device. Thus, while immediate rewards can be effective commitment devices to long-term goal pursuit, this does not seem to apply in the context of electricity conservation. Moreover, individual differences predicted choices of electricity products: Individual levels of loss aversion and temporal discounting predicted tariff choices, mediated by perceived tariff attractiveness and perceived incentive effectiveness. Our findings highlight the potential for designing behaviourally-informed incentives and energy products as well as the market potential for innovative incentive-based tariffs designed to help consumers commit to long-term conservation goals.