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Tail-risk Comprehension and Protection in Real-time Electricity Pricing : Experimental Evidence

Author

Listed:
  • Pretto, Madeline

    (Monash University)

Abstract

Do households comprehend the nature of price tail-risks inherent to real-time electricity pricing plans? Through an incentivised online experiment, we find that a probabilistic risk disclosure elicits greater demand for real-time pricing (RTP) products relative to a low-risk fixed-price alternative, without improving comprehension of tail-risk in RTP. Participants also show a tendency to place low value on tail-risk protection. Finally, the experience of a bill shock improves risk comprehension and drives choice away from RTP, suggesting that personal experience plays a greater role in self-imposed risk protection than does a probabilistic risk disclosure. We discuss the implications these findings may have for regulators with a consumer protection mandate.

Suggested Citation

  • Pretto, Madeline, 2021. "Tail-risk Comprehension and Protection in Real-time Electricity Pricing : Experimental Evidence," Warwick-Monash Economics Student Papers 25, Warwick Monash Economics Student Papers.
    • Handle: RePEc:wrk:wrkesp:25
    as

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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy

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