This talk, brought to you by Rick Larrick, a Michael W. Krzyzewski University Professor of the Fuqua School of Business at Duke University, will describe a set of cognitive biases that lead people to misunderstand their energy use. The talk will review four principles of “choice architecture” derived from cognitive and social psychology for helping decision makers make better energy decisions. Brief research examples will be given in support of each. The principles will also be illustrated more broadly as tools for helping employees and consumers make better decisions.

(1) Do the calculations for decision makers. “Miles per gallon” (MPG) is a familiar efficiency metric used to evaluate automobiles in the United States. However, gas consumption is a highly curvilinear function of MPG. As a result, MPG leads people to severely underestimate the gas savings from small MPG improvements on inefficient cars. Calculating consumption for decision makers by using a measure such as “gallons per 100 miles” corrects this bias.

(2) Translate energy use to important objectives such as cost and environmental impact. People often fail to map energy use to other concerns, such as cost and environmental impact, because they lack knowledge or motivation. Translations remind people of goals they care about and guide them to options they prefer.

(3) Provide a meaningful relative comparison. Relative comparisons help consumers evaluate whether an ambiguous energy number is good or bad. For instance, OPower has demonstrated that people reduce their energy use when given specific comparisons to average (and best) neighbors. Other comparisons, such as ambitious but realistic goals, also lead to reduced energy use.

(4) Use an expanded scale, such as lifetime cost (not daily cost). People tend to ignore small numbers. To address this issue, energy-related numbers can be scaled to large but realistic time periods. Research shows that people are more interested in energy efficient products when given costs on a longer time scale.