Sacramento Nudges People to Use Less Electricity at Peak Hours

Electric utilities have a problem with peak demand. They need to build enough power plants to keep the lights on and the air conditioning running on the hottest days, even if many of those plants operate only a few days a year. Sacramento Municipal Utility District in California calculated that it could build 44 percent fewer “peaking” plants if it could cut peak usage by charging more for power during periods of high demand. The problem for the utility was that most customers didn’t sign up for variable pricing plans.

Enter the “nudge,” which is the term that Richard Thaler uses to describe attempts to guide people toward better choices. Thaler, of the University of Chicago Booth School of Business, won the Nobel prize in economics earlier this month.