Default Effects And Follow-On Behaviour: Evidence From An Electricity Pricing Program

We study default effects in the context of a residential electricity-pricing program. In the large-scale randomized controlled trial we analyse, one treatment group was given the option to opt-in to time-varying pricing while another was defaulted into the program but allowed to opt-out. We provide dramatic evidence of a default effect on program participation, consistent with previous research. A novel feature of our study is that we also observe how the default manipulation impacts customers' subsequent electricity consumption. Passive consumers who did not opt-out but would not have opted in-comprising more than 70% of the sample-nonetheless reduce consumption in response to higher prices. Observing of this follow-on behaviour enables us to assess competing explanations for the default effect. We draw conclusions about the likely welfare effects of defaulting customers onto time-varying pricing.

Automated summary

This study found that even though the majority of customers did not actively choose to opt-in to time-varying pricing, they still reduced electricity consumption in response to higher prices, demonstrating a default effect. Observing this follow-on behavior allowed the researchers to assess competing explanations for the default effect.