Behavioral interventions and market efficiency: The case of a volatile retail electricity market

• Published in: Journal of behavioral and experimental economics 2025-02, Vol.114, p.102328, Article 102328
• Main Authors: Baltaduonis, Rimvydas, Jaraitė, Jūratė, Kažukauskas, Andrius
• Format: Article
• Language: English
• Subjects: Electricity; Laboratory experiment; Market efficiency; Peak prices; Peer comparison; Price notifications
• ISSN: 2214-8043
• DOI: 10.1016/j.socec.2024.102328

•This study investigates consumer decisions and market efficiency in a laboratory economics experiment designed to simulate a retail electricity market.•Feedback regarding monetary and non-monetary information was manipulated.•Notifications about surge prices are effective for reducing resource use.•Notifications increase market efficiency during surge-price periods.•Notifications together with peer-comparison information result in the highest efficiency, especially among underperforming consumer groups.•Favorable perception of peer-comparison feedback declines after consumers receive it. Numerous field experiments have demonstrated that various monetary and informational incentives encourage demand response by increasing awareness about peak electricity prices and potentially inefficient energy use. However, very little is known about the effects of such interventions on overall market efficiency. We conducted a laboratory experiment with 200 participants to test the effects of different interventions on consumer decisions and overall market efficiency in a market reminiscent of a retail electricity market. We investigate two types of incentives—monetary information in the form of notifications about surge prices and non-monetary informational incentives in the form of peer comparisons—separately and together. We find that notifications about surge prices are effective interventions for reducing resource use and increasing market efficiency during surge-price periods. During these periods, the combination of peak-price notifications and peer-comparison information exhibits the highest efficiency.