Irrationality in Energy Retrofits - The influence of cognitive biases on the outcomes of the energy retrofit related decision-making process of Dutch homeowners

Abstract

The heat transition in the Dutch built environment is lagging behind the goals set by the Dutch government. One of the operations in the heat transition is the retrofitting of dwellings with sustainable heating installations and insulation. These measures need to be undertaken by the homeowners. However, there are financially beneficial investments that they do not make. Thus, non-financial factors are also at play. This thesis examines the influence of cognitive biases on the outcomes of the decision-making process of Dutch homeowners concerning investments in home energy retrofits.

The research is done by incorporating cognitive biases included in Prospect Theory into the built environment model Hestia. Comparing the distribution of heating installations and energy labels between a baseline scenario with only financial considerations and multiple simulation runs with differing bias strengths allows for separating the influence of the biases without any other factors being present. Parameter sweeps are done on a municipal geographic scope to examine the behaviour over a large range of bias strengths. In addition, runs with realistic values are done on a national scale. These simulation results are also compared to empirical validation data.

The inclusion of the reference dependence bias increases the share of gas-fired heating installations and decreases the shares of energy labels A and B. For loss aversion, no effect is found on a national scale. In the parameter sweeps, this bias increases the shares of gas-fired heating installations and energy label B, while decreasing that of energy label A. Diminishing sensitivity in only gains leads to an increase in gas and a decrease in energy label A. Diminishing sensitivity in only losses leads to the inverse. When diminishing sensitivity is active in both domains, the share of gas-fired heating options increases while that of label A decreases. In the case where all biases are combined, we see the same effects.

From these results, we conclude that the cognitive biases included in Prospect Theory decrease the number and/or ambition of investments into sustainable heating technologies and insulation. However, the effects did not change trends i.e. turning a decrease into an increase or vice versa. The biases brought the distribution of heating installations more in line with the validation data, while for the distribution of energy labels it is not clear.