Present-biased individuals and their underinvestment in household energy efficiency: Evidence from first-tier Chinese cities

Governments worldwide have placed much effort into improving energy efficiency to realize energy conservation and carbon emission reduction. However, households' investment in energy-efficient products seems not as positive as expected, resulting in the energy efficiency gap. The phenomenon concerning Chinese households and its underlying causes have been overlooked to a considerable extent within the extant literature. The present study endeavours to elucidate the role of present bias in shaping people's energy efficiency investment behaviour. To this end, an online survey containing a sample of more than 3000 individuals residing in Shanghai and Beijing, China was conducted. It is found that: (1) Evidence shows that about one-third of the respondent are present-biased consumers according to the results of survey-elicited time preferences. (2) All else being equal, those showing present bias are significantly underinvesting in energy-efficient appliances. This is reflected in lower adoption rates of energy-efficient electric heaters, water heaters, and washing machines. (3) Present-biased energy consumers exhibit an attention deficit regarding the energy costs of home appliances and may also encounter higher energy bills. (4) Those with signs of being sophisticated, namely, self-aware of the bias, may improve energy-related decisions, thereby mitigating the behavioral failures. This paper underscores the need to aid individuals in recognizing and addressing the present bias when promoting energy-efficiency products.