predictably irrational

1. Understanding
“Predictably Irrational”
Influences on Saving
Energy and the Planet
Behavior, Energy & Climate Change
Conference
Sacramento, CA: November 16-19,2008
Linda Dethman
Dethman & Associates

2. In Memoriam, 19XX-2008?
“Buildings would work perfectly if it
weren’t for the people occupying
them.”
-- Anonymous, ACEEE presenter, circa
1993
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3. Mea Culpa
“I made a mistake in presuming that
the self-interests of organizations. .
.were such as that they were best
capable of protecting their own
shareholders and their equity in the
firms.”
– Alan Greenspan, mid-October,2008
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4. A Behavioral Revolution?
“So perhaps this will be the moment when we alter our
view of decision-making. . . this financial crisis is
going to amount to a coming-out party for
behavioral economists and others who
are bringing sophisticated psychology to
the realm of public policy.”
-- David Brooks, New York Times Op-Ed,
October 28, 2008
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5. Default Rational Decision-
Making Assumptions
Perceive the situation
Consider possible courses of action
Calculate which course is in your
best interest
Take action
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6. “What a piece of work is man? how
noble in reason! how infinite in
faculty!”
-- Act 2, Scene 2, Hamlet, W.Shakespeare
According to Behavioral
Economists
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7. Today
What this talk is based on
Key ideas from behavioral economics
Possible energy program applications
Possible energy policy implications
Conclusions
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8. What this talk is based on
Frustration and elation
Special thanks to four recent books
Predictably Irrational – Dan Ariely
Nudge, Richard H. Thaler, Cass R. Sunstein
Habit, Neale Martin
Sway, Ori Branfman and Rom Branfman
And various articles and crises
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9. Key Ideas
Two states of mind
Anchoring
Fear of loss
The power of FREE
Inertia and status quo
The power of norms
Relativity and comparisons
And more. . .
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10. Two States of Mind
Automatic/Habitual Reflective/Executive
Lizard/puppy brain New/adult brain
Unconscious Self-aware
Uncontrolled Controlled
Associative Deductive
Rapid fire Slow
Skilled Rule-following
Multi-tasking Single minded
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11. Who’s in Charge? Who do
we like?
Mostly the habitual mind rules/has
to rule
The underlying “operating” system
we try to avoid
But we’re most aware of/
comfortable with the executive
mind
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12. Who do we design for/market to?
How to Read The Energy Guide Label
Manufacturer, model number and appliance type
• Information about features, capacity, and size
so you can compare brands
• Estimate of appliance’s annual energy use.
The lower the number, the more energy
efficient the appliance, and the less it costs to
run it.
• If the appliance is an ENERGY STAR
appliance the ENERGY STAR symbol will
appear on the ENERGYGUIDE label
• The range of energy use for similar models.
Use this scale to see how a particular model
measures up to the competition.
• Estimate of how much it can cost to run this
model for a year. Note that the estimated
yearly operating cost is based on the national
average cost of electricity ($0.0824 per kWh).
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13. Anchoring
We are tied to “starting points”
Prices – how much for a cuppa joe?
• In Taipei
Sizes – how big is Las Vegas?
• How big is your town?
Charitable contributions
• “You’re crazy, I can’t afford $500”
The power of random numbers
• Wheel of Fortune and Social Security numbers
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14. Fear of Loss
“Losing something makes you twice
as miserable as gaining the same
thing makes you happy” (T&S)
Do people still equate conservation
with loss?
• Thank you Jimmy Carter
• CFLs etc.
Should we talk about losing $ versus
saving or gaining?
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15. The power of “free”
My dad
Hershey's kisses and Lindt truffles
Amazon
Be careful what you ask for
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16. Time One Time Two
Kiss 1¢ Lindt 14¢
27% 31%
Lindt 15¢ Kiss FREE
73% 69%
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17. Amazon Insights and
Confessions
If you buy a second book, shipping is free
Dramatic sales increase except in France
Buy Amazon “Prime” and get all your
shipping free and faster
Add to your order to meet a minimum and
get FREE Super Saver Shipping
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18. Be Careful What You Ask
For
Consumer response to PPL Electric
Utilities’ compact fluorescent light bulb
program was overwhelmingly positive.
“After running out of power strips. . .”
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19. Status Quo & Inertia
Same seats?
Same investments?
Opting in versus opting out?
How we create our own benefits and
traps
Curves, Weight Watchers, Pro Active
Green Energy
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20. Program Implications
How do we simplify?
What about those labels?
Pricing
How do we capitalize on FREE?
Are we giving the right/any
comparisons?
What anchors do we need to set? How
do we reset anchors?
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21. Program Implications
Can we use fear of loss constructively?
How do we give better feedback?
Pre-mortem thinking – write the history
of a disaster
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22. Policy Implications
If you remember one thing from this session.
. .let it be this one: There is no way of
avoiding meddling. People sometimes have
the confused idea that we are pro meddling.
That is a ridiculous notion. It's impossible not
to meddle. Given that we can't avoid
meddling, let's meddle in a good way.
—Richard Thaler
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23. Policy Ideas
Support behavioral economics research in energy
efficiency, climate change
We really don’t know enough
We need to educate and convince ourselves
(it’s hard to abandon our anchors)
Support technology & feedback mechanisms that
Simplify
Anchor
Honor human reality
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24. Policy Ideas
Enable programs where the default is
“opting in” to efficiency
Help build stronger communities
(norms)
Support more youth education (early
anchoring, values, transformative?)
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25. A conclusion is simply the place
where you got tired of thinking.
Out of intense complexities,
intense simplicities emerge.
- Winston Churchill
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26. THANKS!
Contact: Linda Dethman
ldethman@speakeasy.net
26 Dethman & Associates