Energy Consumption and Habit Formation: Evidence from High Frequency Thermostat Usage Data

Using minute-by-minute data from over 60,000 smart thermostats in households distributed across the United States, we analyze the persistence of energy consumption in response to external shocks. In particular, we consider the impulse response of shocks such as weather events, local energy prices, political action, and news coverage of energy-related stories on how people set their thermostats. This allows us measure the responsiveness of consumer energy-use behavior to external stimuli. The analysis will help develop our understanding of habitual behavior that gives insight into what effects long term change and what triggers the choice to reconsider ones passive choices. We find that temperature choices do respond to external temperature shocks in both short run and long run, providing evidence for both habituation and homeostasis. There is also evidence suggesting that consumers do respond to both price and non-price external nudges in the long run as well. The results have direct policy implications on how conservation policies impact energy use–failure to understand the influence of habit on decision making can lead us to over-estimate the impact of short term policy nudges but underestimate the long run impact of small changes–and how changing trends in climate, in energy prices, in news coverage, and political action, impact consumer behavior.