Put Your Money Where Your B-Tush Is

Thanks to The Times‘s nice writeup (“Dieting? Put Your Money Where Your Fat Is”), an Internet company that I helped found, www.stickK.com, has been getting a spike in commitment contracts. As readers of this blog know, stickK (shameless plug) is a commitment store that helps you stick to your goals. We’ll elicit support from your friends. We’ll nag you if you want. And most uniquely, we’ll let you put your own money at stake. It’s still hard for me to believe that in just over a year, people have been willing to put at risk more than $1 million in their contractual commitments.

Readers of this blog shouldn’t be surprised at the power of incentives.

But The Times recently ran a piece that is also near and dear to my heart — emphasizing the power of peer pressure to change behavior. Positive Energy has been working with the Sacramento Municipal Utility District to test the impact of giving customers a different kind of information on their energy bill:

Last April, it began sending out statements to 35,000 randomly selected customers, rating them on their energy use compared with that of neighbors in 100 homes of similar size that used the same heating fuel. The customers were also compared with the 20 neighbors who were especially efficient in saving energy.

Customers who scored high earned two smiley faces on their statements. “Good” conservation got a single smiley face. Customers … in the “below average” category got frowns, but the utility stopped using them after a few customers got upset.

The exciting news is that “customers who received the personalized report reduced energy use by 2 percent more than those who got standard statements.”

This isn’t a surprise to Robert Cialdini (the author of the classic book Influence), who back in 2004 published a small, randomized study of 290 households in San Marcos, California — again looking at the impact of emoticons (those smiley and frowny faces) on energy consumption. The following figure summarizes the core results:

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Peer information alone led to a reversion to the mean. The households that consumed above the average reduced their consumption, while the below-average households responded to the good news that they were consuming less by increasing their energy consumption. But look what happens in the right-hand columns where peer information is paired with the emoticons. The above-average energy consumers again conserved, without the perverse energy increases from the households that started below average. It looks as if these conserving households act to keep their gold star of approval.

There is also a great writeup of this study as a prime example of choice architecture in the book Nudge. The independent power of the emoticons shows that what’s going on is not just the dissemination of information; it’s about how the information is framed.

In Sacramento, Positive Energy ultimately discontinued sending out the emoticons after a few complaints. But an intermediate strategy would be to discontinue the frowny faces to the energy hogs but continue sending out smiley faces to the “good” conservationist households.

I should add that Cialdini has a financial interest in these outcomes, as he owns a stake in Positive Energy. I also have more than a passing interest. I’m working with Positive Energy to analyze future data on the power of both peer information and commitment contracts. I’ve also been promoting the value of peer information for the last few years. Back in 2005, Barry Nalebuff and I published an article in Forbes, arguing for something right in line with Positive Energy’s core mission:

Why not have the heating bill tell you if you’re using too much energy? Most heating bills report how much gas or electricity you used last month compared with a year ago. A lot of them also report heating degree days (how far and how long the temperature veered below 65 degrees over the course of the month). But this pair of numbers isn’t very helpful. Together they don’t tell you whether you need to upgrade your insulation.

There’s a better way to answer this question. Just tell people how much energy they used that month compared with other people in similar-size homes. In many cities (including our own New Haven), the square footage of each house is publicly available — so the gas company could calculate the energy per square foot for each house and display the information on each month’s bill. Further helping you out by doing the math, it could report energy consumed (in BTU) per square foot per degree day.

We’ll call this measure B-Tush (BTU per square foot per heating degree day). The key here is to report how folks did relative to their neighbors. According to a 1997 Department of Energy survey, the U.S. average B-Tush is 10. If you are up to 25, then you are among the worst 10 percent. You should invest in better insulation — or else turn down the thermostat and buy some sweaters.

Economists tend to think of information and incentives as the core drivers of human behavior. But Cialdini and Positive Energy have me thinking that smiley faces may also play a useful role.

P.S. stickK.com hasn’t quite gone so far as to include emoticons in its messaging to help people stick to their commitments, but we are enhancing the behavioral support features. We’ve just launched several new communities (concerning things like “health and lifestyle,” “green initiatives,” and “money and finance”) to help people better connect with others who have similar goals.


Fred H Schlegel

'Discontinued because of a few complaints...' I find it interesting that a company that wants to change behavior was either surprised or stopped by low volume complaints. Especially when using such a low key tactic. Any kind of meaningful social pressure involves rubbing somebody the wrong way - otherwise you're just going with the flow.

karim kanji

in toronto we were encouraged to decrease our energy consumption. the whole city did. although i can't remember the percentage decrease, guess what happened the following year? Because of decreased revenues, charges for usage increased by the same percentage that usage went down.

???

frankenduf

my third grade teach put a smiley face on one of my math tests-
Sincerely,
Al Einstein

charles

I love the idea of the bill feedback.

MikeM

I can't imagine what goes through a person's head to cause them to write or call to their utility company over an emoticon.

Rian

Karim,

Sounds like Toronto needs to be de-coupled. That is, instead of paying for usage which doesn't encourage conservation, you buy electricity the way most people buy broadband: a flat fee.

This gives power companies incentives to encourage conservation rather than over-usage.

California did this back in the 1990s and since then its GDP has doubled while its electricity consumption has remained flat.

Fascinating stuff, really.

Energy Guy

Beware of B-Tush. Energy usage per square foot is not a very good way to normalize usage -- it systematically makes larger homes seem more efficient and smaller homes less efficient. This reverse bias is due to the fact that heat loss and heat gain occur through the building shell and shell area is not a linear function of floor area. You'd actually get a somewhat better normalization looking at Btu/foot (using the square root of square feet) although it qwould seem odd and unintuitive. A better solution for feedback it to only make comparisons for homes of comparable size and # stories.

Energy Guy

re #6 -- Rian -- decoupling does not mean you pay a flat fee for your energy usage -- that would lead to waste. it means that utility fixed costs are always covered through a rate mechanism but variable costs still vary. It can be done through annual rate adjustments that increase rates when sales fall and decrease rates when sales rise. It can also be done through increasing the fixed customer charge portion of the bill and pricing the marginal energy usage at marginal cost.

Ari

Ian,

You should take a look at Barry Schwartz's lecture from this year's TED conference (www.ted.com). I have to say, it was quite humbling to see how ineffective or even counter-productive incentives can be (at least exogenous incentives). As a member of the small clique of those doing behavioral economics at an academic medical center, his examples really hit home for me.

Sean

@Energy Guy

The article may not have made it clear, but the comparison is in fact done between homes of similar size for the very reason you specify.

Garvit Sah

Smiley emoticons make people feel that they are soing something good and so they continue to do it. On the other hand, just by mentioning on the bill that their energy consumption is less might make people think that they are using less and result in them using more of electricity. These are two opposing forces, and which works out stronger should vary by city and culture.

Perhaps the best to make people conserve energy would be to use increasing block tariffs that charges more if one uses more electricity.

Karl Bielefeldt

Can anyone explain why energy companies are the rare company that wants to sell less of their product?

ryan

Karl - I don't know if it's a general thing, but in Manitoba, there are regulated limits on what Hydro can charge Manitoba residents. But if they can generate a surplus of electricity, then Hydro trades that surplus to nearby provinces and states for more than they could have charged the locals.

Steve

Manitoba Hydro is a unique case. A crown corp that subsidizes its own domestic prices has a strong economic motivation to sell more on the export market. Most other utilities operate on a profit model, however have limits to excisting generation or transmission capacity. In other words a little more growth could mean expensive capital investments.

And because of that DSM (Demand side management) is a very low cost (virtual) generation souirce. . (approx 1-2 cents per KW.h). Therefore it is more cost effective to implment energy efficiency programs than almost all sources of new, traditional generation.

Also in regards to the use per square foot debate. If you use regression analysis and weather normilized degree days you can come up with a represenative tool to calculate what above or below average" is.