December 4, 2013
Written by: Mikhail Haramati, Associate
Why do we approach decisions differently depending on the timing of the consequence? Why does it become harder and harder to make decisions as the day wears on? How does income effect these decisions? How can the energy efficiency community better overcome barriers that prevent people from acting in their own self-interest?
Understanding what motivates customer behavior was a major theme of this year’s Behavior Energy and Climate Change Conference (BECC) in Sacramento, California last month. Surprisingly, people make decisions differently for their future self than for their immediate self.
Limbic vs prefrontal cortex decisions
During his BECC presentation, Greg LaBlanc of UC Berkeley’s Haas School of Business explained that decisions about what to do in the present are governed by the primitive limbic system part of the brain which is unable to think of delayed reward or cost. Decisions about future actions, on the other hand, are made by the frontal cortex system which is where higher thinking and reasoning occurs. The frontal system is easily able to understand the benefits of a small reward now compared to a larger reward further in the future and will choose the larger reward. The problem is that the frontal system is easily overwhelmed by these types of decisions and then the limbic system takes over. The result is that energy saving actions, perceived as a long-term reward, are often overlooked by our busy, easily overwhelmed frontal systems.
This is referred to as “decision fatigue” by Jonathan Levav of Stanford and Shai Danziger of Ben-Gurion University who in 2011 published the paper “Extraneous factors in judicial decisions” analyzing the results of an Israeli court’s parole board decisions about which prisoners to parole. They found that while there was a pattern to the board’s decisions, it had nothing to do with the facts of the case or the characteristics of the prisoner. Instead, the most important factor affecting whether a prisoner was granted parole was the time of day when the judge made the decision. Prisoners appearing before the board in the morning had a 70% likelihood of being granted parole while in the afternoon the odds shrank down to 10%. Making decisions continuously throughout the day wore the judges down and then the default of “no parole” or status quo seemed like the safest option.
Much like the Israeli parole board judges, as individuals we become more and more exhausted throughout the day. The problem with this type of exhaustion is that, unlike fatigue from physical exertion, we don’t necessarily know that we’re getting tired. We also don’t know when our limbic system has taken over because we’re so distracted that we don’t necessarily realize we’re making important decisions. During his talk at ACEEE, Greg LaBlanc described an experiment from Jonah Lehrer’s book “How We Decide” in which researchers conducted a test asking people to memorize two and seven digit numbers and walk to the next room to repeat the number. Each person was interrupted in the hallway and asked to choose between a snack of fruit salad or chocolate cake. Those with the more complicated numbers overwhelmingly chose the unhealthy snack.
Effect on low-income customers
Low-income customers are also disproportionally affected by decision fatigue since they continually struggle with weighty trade-offs. In his 2010 paper “Economic decision-making in poverty,” Dean Spears of Princeton University summarizes the results of an experiment in rural India in which villagers were given the opportunity to buy brand-name soap at a deep discount. The price of the discounted soap was a strain for people in the 10 villages with the lowest income and the act of considering the decision left them with less willpower (as measured by squeezing a hand grip) than those in higher income villages.
Similarly, the same decision about buying a higher-priced energy efficient light bulb is more mentally taxing for a low-income individual then for someone of moderate income. Because the implications of spending what little money they have on an efficient light bulb are substantial, the decision will leave them feeling drained—and since they are continually faced with critical decisions, they have less mental energy to start. For this reason,those in a lower income population are more vulnerable, likely to choose the default, make more decisions with the limbic system, and are less able to take advantage of higher cost short-term payback energy efficiency measures on their own.
There are many other examples of decision fatigue studies that have chronicled how decision-making ability is weakened with each successive decision we make. Researchers Mark Heitmann, Andreas Hermann, and Sheena Iyengar observed purchasers of new cars at dealerships in Switzerland. They found that while customers started by carefully weighing the options for new sedans, as more choices were presented to them they increasingly chose the default options. They found the same for customers making choices for custom suits. Stanford’s Jonathan Levav of the Israeli parole board paper found the same effect when faced with seemingly endless wedding preparation decisions.
Options for overcoming decision fatigue itself include making important choices early in the morning, eating first, being well rested, and knowing when you’re mentally fatigued (these and other approaches are discussed in the 2011 New York Times article Do you Suffer from Decision Fatigue).
Applications for energy efficiency
Yet how to overcome decision fatigue’s debilitating effects for energy efficiency decisions is a slightly different question. Greg LaBlanc suggests the solution lies in bringing the future into the present or accelerating the benefits so that the barriers to action seem less significant. For instance, by employing the residential solar lease model for efficiency, an energy service provider could provide a customer a $300 check now and a promise to keep their bills constant over the next 10 years in return for installation of energy-efficient measures at the customer’s home. Another example he proposes is to utilize the electronics and mattress retail sales strategies of allowing a customer to purchase a good on credit and not make payment for the first six or 12 months. LaBlanc suggests the same sales model could be used for energy efficiency goods, and that doing so would take advantage of the limbic system to help customers make the right decision about energy efficiency. By receiving the efficient hot water heater or clothes washer immediately but delaying the cost, the customer would be able to receive the benefits immediately and leave payment of the benefits to their future self.
Efficiency program administrators can employ this knowledge in a variety of ways. Programs that require a decision by the frontal system could seek to make appointments with customers in the morning, create a space free of distractions for decision-making, and limit the number of decisions a customer has to make. If a variety of decisions are needed, or if a customer is likely to be overwhelmed, program administrators should strive to make the default option the more efficient one. Minimizing mental effort for customers may seem trivial to some, but as the numerous decision fatigue studies have shown, is well worth it.