Abstract

We conduct laboratory experiments to investigate how private and public information affect the selection of an environmental innovation and the timing of its adoption. The results reveal behavioral patterns underlying the “energyefficiency gap” in which consumers and firms delay adoption of cost-effective energy and environmental innovations. Our subjects choose between competing innovations with freedom to select the timing of their adoption, relying on private signals and possibly on observation of their peers' actions. When deciding whether to make an irreversible choice between a safe and a risky technology, roughly half of subjects delay adoption beyond the time prescribed by equilibrium behavior — pointing to a possible behavioral anomaly. When they do adopt, subjects give proportionately more weight to their private signals than to their peers' actions, implying that they do not ‘herd’ on the actions of their peers. Nevertheless, when subjects observe their peers' decisions, they accelerate the timing of their adoptions, but do not necessarily imitate their peers. This occurs even when payoffs are statistically independent as though observing prior adoptions exerts “peer pressure” on the subjects to act. The experimental results suggest that rapid dissemination of information of peer actions can speed up diffusion of innovations that save energy and protect the environment, and improve selection from among competing technologies.