Turning Up the Heat: Georgia Tech Economist Finds Price Has Little Impact on Consumers’ Thermostat Choices

In a study by a Georgia Tech economist that could help inform future energy policy, half the participants cranked their thermostats despite knowing exactly how much each extra degree would cost them.

Prices are typically the first tool used to get people to save energy, noted Dylan Brewer, assistant professor in the Georgia Tech School of Economics. As climate change affects communities and utilities transition to sustainable sources, it’s increasingly critical for regulators and utilities to understand exactly how price affects consumers’ energy use.

“There's kind of a puzzle that exists in the literature on energy consumption,” Brewer said. When it comes to most commodities, price drives demand, but “if the price of electricity changes, most people are not very responsive.” He wanted to test the popular theory that inelastic demand is the result of consumers not knowing the exact price of turning up the thermostat.

In his 2023 study in the journal Energy Policy, Brewer surveyed a sample of Americans after a winter of real-time heating decisions. They were presented with different cost scenarios and asked about their “bliss point” — the temperature at which they’d keep their houses if money were no object.

As a Ph.D. student at Michigan State University, Brewer was struck by how many landlords offered “free heat” during East Lansing’s frigid winters.

He saw that when “people are not on the hook for a decision, they're often wasteful. But if they're paying for their environmental costs, they're going to conserve.” He focused on this phenomenon in his dissertation and has since launched other projects on the economics of thermostat settings. “It’s my niche,” he said.

In the study, participants knew exactly how much an extra degree of heat would cost them. Yet even at the highest price level ($8 per 5 degrees Fahrenheit), half of them exhibited zero response to price, Brewer reported. On average, doubling heating costs led respondents to say they would lower less than 1 degree Fahrenheit.

Brewer found that participants with incomes below $50,000 and those living in urban areas were more responsive to price changes, while older participants had less elastic demand.

It turns out, Brewer noted, “People simply do not like to be cold.”

The results are just as relevant for warm-weather states. In Georgia in 2022, 42% of the state's electricity was used for air conditioning and nearly three in five households with electric heating, according to the U.S. Energy Information Association.

Based on study results, Brewer noted that utilities confronted with extreme weather or a supply-side disruption might encourage customers to shift electricity usage to off-peak hours rather than assume they’ll be affected by an increase in rates. “If you have an energy emergency and need to curb energy consumption, this is telling you that prices are not going to do it,” he said.

“This is a daily choice that we make,” Brewer said. “Given that we spend a huge fraction of our time in climate-controlled buildings, these types of heating and cooling issues have pretty large implications.”