How hyperbolic discounting preference affects Chinese consumers’ consumption choice between conventional and electric vehicles

• Published in: Energy policy 2016-10, Vol.97, p.400-413
• Main Authors: Wu, Tian, Shang, Zhe, Tian, Xin, Wang, Shouyang
• Format: Article
• Language: English
• Subjects: Alternative fuel vehicles; Bias; Case studies; China transport; Consumer behavior; Consumer behaviour; Consumers; Consumption; Cost analysis; Discount rates; Electric vehicles; Empirical analysis; Human behavior; Hyperbolic discounting; Internal combustion engines; Irrational vehicle consumption choice; Life cycle analysis; Life cycle costs; Life cycle engineering; Life cycles; Life-cycle private cost; Ownership; Polls & surveys; Preferences; Studies; Theoretical analysis; Time; Time discounting; Wealth
• ISSN: 0301-4215; 1873-6777
• DOI: 10.1016/j.enpol.2016.07.004

This paper presents a theoretical model and addresses several issues related to life cycle cost analysis to illustrate how time-inconsistent preferences affect consumer choice. The particular case study selects involved consumer choice between a vehicle with high initial acquisition cost but low ownership cost (e.g., an Electric Vehicle, EV) and one with a low initial acquisition cost but high ownership cost (e.g., a conventional Internal Combustion Engine Vehicle, ICEV). To test our theoretical analysis, we conduct an empirical study on how time discounting rates affect consumer choice between ICEVs and EVs with different initial cost ratios. From the survey results, we find that individuals with higher present bias showed irrational purchase behavior even when controlling for wealth level. Specifically, people making some “stronger bias to present” decisions chose higher total cost ICEVs with lower initial cost but higher ownership cost over lower total cost EVs with higher initial cost and lower ownership cost. However, people’s long-term discount is not correlated with irrational vehicle purchase behavior. Furthermore, we study the present bias and long-term discount rate in one scenario and found present bias to be correlated with irrational behavior. •Theoretical model and survey based on psychological experiment are used for study.•Time inconsistency preferences may affect consumers' rational purchasing choice.•Present bias is correlated with irrational behavior, but long-term discount is not.