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Explaining the Energy Efficiency Gap : Expected Utility Theory versus Cumulative Prospect Theory

Title data

Häckel, Björn ; Pfosser, Stefan ; Tränkler, Timm:
Explaining the Energy Efficiency Gap : Expected Utility Theory versus Cumulative Prospect Theory.
In: Energy Policy. Vol. 111 (2017) . - pp. 414-426.
ISSN 0301-4215

Official URL: Volltext

Project information

Project title:
Project's official title
Project's id
Projektgruppe WI Digital Finance
No information
Projektgruppe WI Nachhaltiges Energiemanagement & Mobilität
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Abstract in another language

Energy efficiency is one of the key factors in mitigating the impact of climate change and preserving non-renewable resources. Although environmental and economic justifications for energy efficiency investments are compelling, there is a gap between the observable and some notion of optimized energy consumption - the so-called energy efficiency gap. Behavioral biases in individual
decision making have been resonated by environmental research to explain this gap. To analyze the influence of behavioral biases on decisions upon energy efficiency investments quantitatively, we compare Expected Utility Theory with Cumulative Prospect Theory. On basis of a real-world example, we illustrate how the extent of the gap is influenced by behavioral biases such as loss aversion, probability weighting and framing. Our findings indicate that Cumulative Prospect Theory offers possible explanations for many barriers discussed in literature. For example, the size of the gap rises with increased risk and investment costs. Because behavioral biases are systematic and pervasive, our insights constitute a valuable quantitative basis for environmental policy measures, such as
customer-focused and quantitatively backed public awareness campaigns, financial incentives or energy savings insurances. In this vein, this paper may contribute to an accelerated adaption of energy efficiency measures by the broader public.

Further data

Item Type: Article in a journal
Refereed: Yes
Keywords: Energy Efficiency Investment; Energy Efficiency Gap; Cumulative Prospect Theory;
Expected Utility Theory; Behavioral Barrier
Institutions of the University: Faculties > Faculty of Law, Business and Economics > Department of Business Administration
Research Institutions
Research Institutions > Affiliated Institutes
Research Institutions > Affiliated Institutes > Fraunhofer Project Group Business and Information Systems Engineering
Research Institutions > Affiliated Institutes > FIM Research Center Finance & Information Management
Faculties > Faculty of Law, Business and Economics
Result of work at the UBT: No
DDC Subjects: 000 Computer Science, information, general works > 004 Computer science
300 Social sciences > 330 Economics
Date Deposited: 22 Dec 2017 06:52
Last Modified: 20 Oct 2021 10:56