Professor Ho Teck Hua is Vice President (Research Strategy) and Tan Chin Tuan Centennial Professor at the National University of Singapore. His research interests lie in behavioural economics and quantitative marketing models, as well as the intersection between behavioural science and energy efficiency. At the National University of Singapore (NUS), Prof Ho serves as the Vice President of Research Strategy while holding a concurrent position as the William Halford Jr. Family Professor of Marketing and the Chair of the Marketing Department at the Haas School of Business at the University of California, Berkeley. Since 2002, he has also been a consulting professor to the NUS Overseas College in Silicon Valley. In 2010, he was awarded the prestigious Berkeley Distinguished Teaching Award.
Prof Ho graduated from NUS with a B.S. with first-class honors in Electrical Engineering and an M.S. in Computer and Information Sciences. He went on to attain a M.A. and Ph.D. in Decision Sciences from The Wharton School, University of Pennsylvania. Prof Ho earned his tenure at Wharton in 1999.
1. Many countries devote substantial public resources to the research and development of energy-efficient technologies. What is the role of behavioural economics in shaping policies that positively impact energy efficiency? What process can be put in place to develop basic behavioural science into large-scale business and policy innovations?
Ho Teck Hua: First of all, it’s important to understand that there are two parts to the energy efficiency equation – the supply side and the demand side. The supply side refers to the technologies and the machines that are available to us, such as hybrid cars, energy-efficient household appliances, and the like. The demand side refers to how consumers make use of these technologies and machines.
Most of the R&D to date have been on the supply side, involving the development of more energy-efficient technologies. The demand side is the focus of far less R&D. But if we wish to harness the full promise of energy efficiency, that has to change. Governments need to pay more attention to the demand side. There is no point in having consumers buy more efficient air-conditioners if they are now going to – paradoxically – be using them more frequently. The net result will be the opposite of what we desire.
That’s where behavioural science can come in. By reshaping energy usage patterns, behavioural science addresses the energy efficiency issue from the demand side, hence closing the loop.
2. Studies show that raising awareness of the need for energy efficiency alone doesn't translate into energy-saving behavioural changes. What is a powerful way to help people change their behaviour?
Ho Teck Hua: It is true that raising awareness of the need for energy efficiency doesn’t translate into energy-saving behavioural changes. Awareness breeds positive intentions, but there is still a leap to make before concrete actions are taken.
In behavioural science, there are three levers to make this leap. First, we alter the physical environment. For example, if we want to discourage littering, we increase the number of litter bins in a locale, making it easier for people not to litter. Second, we provide clear knowledge and information on the issue at hand, and help people understand the repercussions of their action or non-action. Third, we provide incentives that, in the immediate term, give a sense of social recognition and which, over the long term, start to reshape social norms. These three levers get us into the business of habit formation, which is the critical ingredient of any long-term solution in energy efficiency.
3. What is an example of how this has worked?
Ho Teck Hua:There was an interesting study done in California which demonstrated this, and which I’m hoping to now replicate in Singapore. The study involved placing door hangers at consumers’ homes on a weekly basis, illustrating the household’s energy usage pattern for that week, and juxtaposing that against the average usage of households of an equivalent size and income level. Basically, it was a way to ask the consumer: Are you faring better or worse than your peers in how you use energy?
What was interesting was that while households that were ‘below-average’ bucked up, so to speak, households that were ‘above average’ got complacent, resulting in a zero net gain of energy efficiency. So they had a rethink, and the next thing they did was to use emoticons.
‘Above average’ households now got a smiley face stuck to their door hangers alongside the statistics, while ‘below-average’ households got a frowning face. This worked better, as the ‘below-average’ households continued to buck up while the ‘above-average’ households started maintaining their good behaviour. There was a net gain in energy efficiency but even then, you could say that only 50% of the households were being engaged.
So how I’m going to now modify this study in Singapore is to introduce the element of past-self comparison, on top of peer comparison. Past-self comparison is a way to show households not only how they are faring vis-à-vis their peers, but also how their own energy efficiency has improved over time. The result of doing this is that we will now be able to engage not 50%, but 75% of all households – the ones who are below-average, as well as half of all above-average households who now know that they are actually below-average on the basis of past-self comparison.
The lesson here is that social incentives are important, but they don’t always have to be monetary. It is also about making people feel good about themselves and over time, shaping new social norms.
4. Eco and Green labels are commonly used by governments and NGOs to promote greater energy efficiency by encouraging companies to design and manufacture with the environment in mind. How effective are such schemes in helping to change consumer behaviour? What else needs to be addressed?
Ho Teck Hua: This is an interesting question, because there are so many energy-efficient household appliances in the market today with such labels. When you buy one, the value preposition is that you save money in the long run, even though the upfront cost is higher. But that is precisely why such schemes aren’t more successful than they are, because the thing many consumers see is the upfront cost. Long-term savings are less tangible and sometimes, because of the paradoxical consumer behaviour known as the Rebound Effect, they don’t even materialize.
One way to improve such schemes is to get governments or companies to partially offset the higher upfront cost. Let’s say an ordinary air-conditioner costs $1,000 while an energy-efficient air-conditioner costs $1,500. A sponsoring organization comes in and tells the consumer at this point: Look, we know the energy-efficient air-conditioner is more expensive, but here’s a loan of $500 for you, buy the energy-efficient air-conditioner because it won’t cost you more now, plus you will be doing your part for the environment. The catch here is that the consumer has to commit to not increase his usage with this energy-efficient air-conditioner. If he or she is able to do that, it enables the utilities to pass on the cost savings back to the sponsoring organization over the ensuing months.
This is a powerful proposition because we have now made the purchase decision a commercial one, not a values-based one. When we do this, we are able to change the behaviours of the unconverted, without having to convert them.
5. At a recent energy forum, you proposed two interesting ideas on how to encourage energy-saving behaviours by the consumer: The creation of psychological consumption budgets, and the use of "internal and external references" when providing feedback on energy usage patterns. What are they and how do they work?
Ho Teck Hua: The psychological consumption budget is based on the idea of using a past month’s energy usage amount as the current month’s ‘budget’. We tell consumers: Last July, you used ‘X’ amount of electricity. This month, try to keep to the same amount, if not lower. We help them do this by displaying their energy consumption as a bar chart that resembles a budget. It’s an “energy budget” or sorts, showing how much ‘credit’ they have remaining till the end of the month, or if they have already ‘gone into the red’. We can do this not only for past-self comparisons, but also for peer comparisons. I think it is a powerful idea because it takes energy efficiency and wraps it in the language of budgeting, one that is familiar to everyone.
The second idea, the use of internal and external references when providing feedback on energy usage patterns, refers to the use of emoticons like in the California study I outlined earlier. The internal reference is the smiley or frowning face you get, based on whether you have improved your energy efficiency over time. The external reference is the smiley or frowning face you get, based on how you stack up against similar households.
In the Singapore study, however, I think it would be better to use a question mark instead of a frowning face for households that need to buck up. We don’t want to risk offending anyone!