A recent working paper shows that insights from behavioral economics help explain consumers’ choices in a demand response program.
Richard Thaler won the Nobel Prize in Economics last month, making him the third behavioral economist to earn this honor in the last 16 years (Daniel Kahneman, of Thinking Fast and Slow fame, won in 2002 and Robert Shiller won in 2013). The members of the Nobel committee must think the behavioralists are on to something.
In a nutshell, behavioral economists bring insights from psychology to economics. A recent paper by James Gillan, a researcher at the Energy Institute who is finishing his PhD this spring, highlights that electricity markets are not immune to the influences of human psychology.
Gillan’s study takes on a sacred cow in economics: the law of demand. The law of demand holds that when the price of something goes up, people…
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