A Field Experiment on Dynamic Electricity Pricing in Los Alamos: Opt-in Versus Opt-out

We use a field experiment to examine how consumers respond to distinct combinations of default options (opt-in versus opt-out) and framing of economic incentives (gain versus loss). A randomized controlled trial (RCT) is implemented to investigate the demand reduction performance of three dynamic electricity pricing programs opt-in critical peak pricing (CPP, incentive framed as loss), opt-out CPP, and opt-out peak time rebate (PTR, incentive framed as gain). We find that the opt-in customer enrollment rate is much higher than those documented in the literature are; our subjects’ high education levels and technology related experiences may have contributed largely to the mitigation of the opt-in default effect. In addition, we obtain precise estimates of the average treatment effects, with the treatment effect being most pronounced for customers assigned to the opt-in CPP group. This result is largely attributable to the high opt-in CPP enrollment rate and to the customer inertia generated by opt-out procedures. Furthermore, an “option to quit” effect is found among PTR customers. This finding is consistent with a growing behavioral literature highlighting that incentives framed as losses loom larger than those framed as gains. JEL classification: C23, C93, D03, Q41