FOLK QUANTIFICATION OF ENERGY?

WILLETTKEMPTONand LAURAMONTGOMERY
Family Energy Project. Institute for Family and Child Study. College of Human Ecology. Michigan State University
East Lansing. MI 48824. U.S.A.%

(Receired 21 April 19%)

Abstract-Consumers use simplified measurements as a basis for residential energy decisions. We analyze
their measurements of monthly consumption. changes through time, comparison of appliances, and length
of payback period. Because of systematic errors in quantification, consumers choose ineffective energy
conservation actions, and underestimate the benefits of previous actions. These errors do not result solely
from lack of information since they are made even by consumers who understand technical energy
measurement. To explain the persistence of a seemingly disadvantageous system. we show that consumer
methods are cognitively efficient. They are easy to learn and use and are compatible with general-purpose
budgeting tasks. However, they lead to higher energy use than would be economically optimal for either the
individual or the nation.

INTRODUCTION

About one-third of U.S. energy is consumed directly by individuals, in homes and

automobiles.‘,’ Constimers measure energy using techniques that differ from those of profes-
sional energy analysts. We refer to these informal measurement techniques as folk
quantification. Folk quantification, as a basis for consumer decisions, is of practical interest due
to its considerable impact on national energy consumption. Folk quantification is also of
theoretical interest to the cognitive sciences, since it illuminates the principles of people’s
everyday reasoning.‘.4 Nevertheless, this topic has, to date, remained virtually unstudied.
Consumer energy choices are more difficult than other market decisions, partly because
multiple residential energy uses are aggregated into one or two utility bills. Imagine a parallel
situation for groceries: a store without prices on individual items, which presented only one
total bill at the cash register. In such a store, the shopper would have to estimate item price by
weight or packaging, by experimenting with different purchasing patterns, or by using consumer
bulletins based on average purchases. Although these cost estimation methods seem unbeliev-
ably crude for groceries, we show here that such methods are indeed used to estimate
household energy use.

ETHNOGRAPHIC METHODS

To study folk quantification, we use ethnographic techniques. These techniques were

developed to study foreign cultures, while minimizing the biases of the interviewer’s own
culture. Although we are from the same culture as our interviewees, we found that our own
technical energy training made us see issues differently and measure different quantities.
From an energy expert’s perspective, it is tempting to dismiss folk quantification methods as
inaccurate or wrong; economic models ignore them by assuming perfect information. But these
folk methods make sense to their users, are the basis of current market decisions, and will be
used by consumers to interpret future energy information and advertising. We use ethnographic
methods because they facilitate an understanding of folk quantification in the terms of its users.
Ethnographic methods are fully described elsewhere;5.h we briefly describe our use of them
here. We interviewed families in their homes.0 Our interviews did not use predefined questions;

tThis research was funded by the M.S.U. Agricultural Experiment Station, as Project 3152. Thispaper is A.E.S. Journal
Article No. 9987.
:Both authors are also affiliated with the Department of Anthropology at Michigan State University. Correspondence
should be addressed to W. Kempton.
lFor our study,a familywas defined as a co-resident group including a least one adult and having a personal
commitment to one another. In interviews, we usually talked with all adults, and included children when possible.

817
818 W. KEMPTONand L. MONTGOMERY

we kept within energy topics, but allowed the informants to guide much of the specific
discussion (this is why interviewees are called informants rather than respondents). After the
informant had talked freely for a while, we would ask questions eliciting clarification or more
detail. Careful questioning often revealed that informants were using terms like “energy
consumption” and “energy crisis” differently from us.
Thirty Michigan families were interviewed in 1980. This modest sample cannot adequately
represent the nation, but it is adequate to illustrate common nontechnical ways of thinking
about energy. Of the 30 families, 10 were selected because they had adopted particular
energy-saving devices, such as a solar system, wood heat, or bicycles. The remainder were
selected from an earlier probability sample? to span a range of incomes, occupations, and
family types. Interview data were compared with utility consumption data. We included equal
proportions of families who had reduced energy consumption and families who had not.
Interviews were taped and transcribed. As is common in ethnographic reports, we illustrate
major points with quotations from our informants. Unless noted otherwise, quotations are used
only when similar points were made by several informants.

FOLK UNITS OF MEASUREMENT

None of the families we interviewed used the abstract energy units of physics, such as
joules or Btus, and very few used commercial units, such as kilowatt-hours or Ccfs. Here we
discuss folk units, i.e., those units which are familiar to and used by ordinary people. For
example, gallons, dollars, and months are folk units. Folk units are easily visualized, multi-
purpose, and appropriately scaled.
In this section we show how folk units, especially dollars,.are used to measure monthly
energy consumption. For comparison with other fuels, we first discuss gasoline, because it is
well quantified in folk units. Its quantity is measured in gallons, its price in dollars per gallon,
and its productive output in vehicle miles traveled. Gallons, dollars, and miles are all easily
visualized and understood. Vehicle efficiency is quantified by a simple ratio of two folk units,
miles per gallon. Therefore, consumers measure and compare energy efficiency much more
easily for automobiles than for houses and other durable consumer goods.
None of the other fuels is as well quantified as gasoline. Fuel oil can be measured in gallons,
but its productive output (degree-days of heating) does not correspond to any folk unit.
Therefore, a gallon of gasoline is more meaningful than a gallon of fuel oil. Still less meaningful
are units of electricity and natural gas, since consumers cannot easily measure either the
commercial units or the work performed.
Gasoline and fuel oil can also be measured in folk units by using time intervals between fills.
For example, a man evaluated his home weatherization as follows: before weatherization, “the
guy was coming twice a month to fill my tank up,” whereas now he “only fills it up once a
month.” These measures refer to the shortest interval of the season, during the coldest months.
Time interval measurements successfully control for price increases, but not for variations in
weather and delivery scheduling.
When we asked informants to compare types of energy, they used dollars. For example, one
informant, a heating equipment retailer, ranked fuel oil as his “main use” of energy. We then
asked him whether he meant that he used the most or it cost the most. He replied: “Well, I
don’t know, ‘cause I don’t know how you compare the kilowatts with gallons of oil (laugh). So I
don’t know, ya know, how we could compare something like that, but as far as money wise,
yes, I definitely use more oil than I do electricity . . .” Dollars provide the only folk measure
available for comparison of fuels.
Like comparisons across fuels, comparisons through time also used the folk measure, billed
dollars, For example, a woman trying to convince her husband that their insulation had reduced
natural gas consumption said “Yeah, but this year we didn’t have any $100 gas bills, did we? I
mean we used to have $100 gas bills.” Like many others, she used peak dollars to compare
yearly totals.

tArea probability samples in 1974 and 1976, from the Lansing. Michigan SMSA. reported in Ref. 7. Several low income
cases were added to compensate for attrition since 1976.
 Folk quantification of energy 819

Even people who did examine fuel units found them less useful than dollars. One person
reported: “I’d look a! the kilowatt-hours but that doesn’t mean an awful lot to me.” Another
said she could remember the dollar amount but not the fuel units “because you’re remembering
the balance in your checkbook (pause) you know, or how much it hurts to pay the bill.” Dollars
are easier to remember because they are meaningful, that is, they relate to other activities and
computati0ns.t
Dollars are used not only for measurement, but also for interpretation of national policy. We
asked one family, who had halved their fuel oil use, whether they thought their conservation
actions were “a way to solve the energy crisis.” They replied with an emphatic “no,” explaining
“it’s not gonna solve the problem” until “the corporations” stop raising energy prices. This was
one of several families who apparently had interpreted public statements about “the energy
crisis” in terms of the monthly payment crisis they experience personally.
Written energy records were kept by a minority of the families. Only two included fuel
units. Figure 1 is an excerpt from one of these two; the other is discussed in the section on
calculating savings. Figure 1 records natural gas use, which is metered by Ccfs. Such records
are unusual, and this one is especially thorough because it records Ccfs and dates as well as
dollars. Nevertheless, we find a conceptual bias toward dollars even in this case. The bias
toward dollars is pervasive; Fig. 1 manifests it in four ways: (1) Dollars are recorded in larger
lettering than Ccfs. (2) Dollars, but not Ccfs, are computed into yearly totals and monthly
averages. (3) The labelled month is when the payment was made, not when the gas was
consumed. (4) Ccfs are labelled not by name but as “Units used.”
The consequences of totaling and comparing by dollars is demonstrated in Table 1, which

Fig. I. Excerpt from a family energy record. Dollars, Ccfs, and meter read dates are recorded. At the
bottom of each column is the summation of annual dollars, and the monthly dollar average. Ccfs were not
summed.

Table I. Our annual summations from the record excerpted in Fig. I. Some dollar totals are slightly different from those
of Fig. 1due to correction of arithmetic errors. Between 1975and 1977consumption declined IO%,but this fact is
obscured by the dollar summations.

tMany people can name fuel units, but do not associate a meaningful quantity with the name. In a study of 43
well-educated households in Princeton, few could accurately give the price of a kilowatt-hour of electricity. Answers
ranged from $0.03 to $5.00, with a median of $0.31. The correct answer was $0.05, but only 16% guessed $0.10 or under
(Ref. IO.p. 76).

EGY Vol. 7. No I&B

820 W. KEMPTON
and L. MONTGOMERY

sums both Ccfs and dollars from the full household record. Gas consumption drops 10%
between 1976 and 1977. The drop is obvious in the Ccf summations but invisible in the dollar
summations.
The problem we describe here is due to calculation and measurement methods, not
ignorance or misconception. All of our informants, including the person who kept the records
of Fig. 1, were keenly aware of the relationship between consumption, unit price, and billed
cost. Several informants told us “you have to look at the amount, not just the dollars,”
presumably reciting advice from utility or government publications. However, when they
showed us their actual calculations, they had in fact used dollars. At best, consumption amount
was considered indirectly, as in the following quotation from a woman marshaling evidence of
her neighbor’s benefits from insulation: “It [the oil bill] was going up so much a year and the
year after they insulated they paid the same amount for oil as they did the year before they
insulated.” She concluded from this evidence that the insulation “cut their bill down.” Her
approximation successfully identifies a drop in consumption balanced by rising unit prices,
without measuring either consumption or unit price directly.
Such methods seem awkward from the viewpoint of the energy analyst. Why not just
measure consumption directly? Dollar measurements, though inexact, offer advantages in
household management. Dollars apply broadly to housing, food, and other expenses; thus, they
allow comparisons across expenditure categories. Further, monthly measures are needed in
dollars for money management, which requires anticipating expenses repeated in periodic
billing cycles.’ We further analyze energy measurement in dollars when we discuss payback
calculations.

DISAGGREGATING ENERGY CONSUMPTION

The preceding methods estimate aggregate monthly energy consumption. Families use other
methods to disaggregate the total into individual activities and devices. Disaggregation is
performed both consciously, by deliberate experiments, and unconsciously, through perceptual
and cognitive factors. As an example, we compare folk estimates of lighting and water heating.
Residential lighting consumes a small proportion of total residential energy, but when asked
for major energy uses, consumers usually mention lighting and most frequently mention it first.
By comparison, hot water heating consumes about 7 times the energy of lighting,? but was
mentioned far less frequently. Our ethnographic interviews did not quantify consumer judg-
ments, but a 1978 survey of 400 Michigan families did, as summarized in Table 23 When asked
“What things do you know that a family could do to reduce the energy consumption in their

Table 2. Energy-conservation actions suggested most frequently in an open-ended question. Half of the sample was
asked to estimate annual dollar savings of the actions they volunteered; dollar figures average the estimates of those
who responded. In contrast to the above folk estimates, energy analysts would rank lighting far below hot water in
potential dollar savings. Data from Ref. 9.

Folk estimate of
conservation action Percent mentioning annual savings

(N = 400) DOllWS N

Reduce lighting 59 67 48

Lower themstat 58 86 63

Insulate 27 133 26

Use less hot water 12 32 7

tPer capita U.S. residential lighting is 335 net kWh annually, less than one-seventh of per capita water heating at
2450kWh. With net annual residential use at 14855per capita, lighting is only 2% of that total. Data from Table 6. Ref. 1.
SProbability sample of 400 Michigan households in 1978.Data from Table 2.12, page 2-23 of Ref. 9, augmented by data
from personal communication. Related data can be found in Ref. IO. pp. 75-84, and in Ref. I I. These data are analyzed
more fully in Ref. 19.
 Folk quantification of energy 821

house?“, 59% listed lighting reductions while only 12% listed hot water reductions. When asked
to estimate the annual dollar savings of each action, the average for lighting was $67, for hot
water $32. Our inference of an overemphasis on lighting is also consistent with an earlier (1976)
survey of actions taken: almost twice as many families reported having made lighting reduc-
tions as hot water reductions.‘*
Engineering studies have demonstrated several low-cost water changes which do not affect
cleaning or convenience and yield savings much greater than lighting management.“,‘4 We will
suggest reasons for the folk overemphasis on lighting, and argue that this overemphasis reduces
total evergy savings. Historical and cognitive reasons explain the emphasis on lighting.
Historically, the older adults of today (and the parents of younger adults) grew up when
households had few electric appliances. Then, lighting consumed most household electricity
(initially 100%) and electricity was more expensive (in inflation-adjusted dollars). Therefore,
lighting reductions previously did reduce electric bills effectively.
Two cognitive factors, in perception and categorization, also explain the overemphasis on
lighting. In perception, the output of lighting is more salient than that of other appliances. In
categorization, lighting is a prototype for household electricity uses. We draw the notion of
prototype from cognitive psychology”.‘6 and cognitive anthropology;‘7.‘Xthe prototype is one
specific example that is used to represent a broader general category. As evidence that lighting
is a prototype for electricity use, we note that informants usually mentioned it first in lists of
electrical uses, and often used it as a synonym for electricity (as in “the light bill”).
The practical result of these historical and cognitive factors is that attempts to reduce
electricity use will focus first and foremost on lighting.? These actions have limited potential. If
residential lighting were reduced by a third, the average family would only realize a $1.53
reduction in their monthly bill.+ By comparison, simple and inexpensive hot water efficiency
improvements would save $I 1.00 monthly for electric water heating or $4.80 monthly for gas.5
Families reduce lighting predominantly through management. Unlike equipment improve-
ments, management requires no cash investment cost. However, it can have high costs in
attention and discipline. In one example which was typical, a man wondered aloud whether it
was worthwhile having to “yell at my kids and tell them to turn that light off .” Further, the small
potential savings mean that even diligent lighting managers are unlikely to notice any change in
monthly bills, and may conclude that energy conservation efforts are futile.
Besides lighting, energy use of other appliances is also estimated by nonenergy factors. For
example, running time is used as evidence of high energy consumption. This would be correct
only if differing power load were considered. Another factor which we hypothesize, based on
limited data, is that a machine’s energy use is estimated by the quantity of human labor it
replaces. We advance this hypothesis to explain why appliances such as mixers and dish-
washers were mentioned more frequently than other, more energy-intensive ones. This factor is
especially perverse because it leads families to give up precisely the devices which save the
most labor.
Some families performed deliberate experiments to disaggregate energy uses. Typically,
they would change an appliance or behavior and look for a change in the next utility bill. In
most cases, the energy was too small to distinguish from other monthly fluctuations. For
example, one family tried to watch less television, and another turned off their electric range
elements a few minutes before cooking was complete. Both expressed surprise and frustration
at the lack of change in their bills; the people who turned their range off early concluded “What
the heck is the use of saving? You know, why try to save when it don’t do any good?”
Another problem with these experiments is that they measure dollars billed rather than
energy units. In another unsuccessful experiment, one family noted that their electric bill went

+This problem occurs at the program level as well as the individual level. For example, many energy conservation
programs have used a light bulb as a symbol or have used slogans like “Turn out that light!” The prototypicality of lighting
makes it a good symbol, likely to be chosen by advertising staff not acquainted with energy measurements. Such efforts
have perpetuated the overemphasis on lighting.
$The monthly $1.53 estimate is based on one-third of 1100 kWh, annually per household (Ref. IO, p. MO), priced at
SO.O5/kWh,. Note that this argument does not apply to lighting in the commercial and industrial sectors, where potential
savings are large.
IHot water improvements are estimated provide annual savings of 2606 kWh, or 144 therms,” which we price at
%O.OS/kWh, and $04O/therm. Comparable estimates are obtained from Ref. 14.
822 W. KEMPTONand L. MONTGOMERY

up after a plumber raised the hot water temperature. They had him turn the temperature back
down, but reported: “That didn’t help any.” Their measurements combined price increases,
water consumption changes, and changes in use of other appliances. We would interpret this as
an experiment with too many uncontrolled variables, but the family presented it to us as further
evidence for the futility of trying to save energy.

MEASURING FINANCIAL SAVINGS FROM CONSERVATION

Since families quantify energy primarily in dollars, they compute financial savings differen-
tly from a business analyst. An analyst first would compute units of fuel saved, then would
multiply by the marginal price per unit of fuel. Families use a simpler calculation of savings:
previous costs minus current costs. The two methods are compared algebraically as follows.
For year y, we write energy consumed as E,, price per unit as P,, and cost as C,. For an
efficiency improvement made at the end of the year 0. the savings in year 1, S,, is computed as

S, = PdE,,- E,), expert method; (1)

s; = co-c,, folk method. (1’)

Since cost is the product of price and quantity, we can compare Eqs. (I) and (1’) by rewriting
them as

S, = P,E,- PIE,, expert method; (2)

S; = P,Eo - P,E,, folk method. (2’)

This expansion clarifies the relationship between the two methods. With constant energy prices,
they yield equal results. Rising prices cause the folk method to underestimate savings.
From yearly dollar savings, the payback period can be calculated in order to evaluate an
energy investment. An investment, I, has a payback period of n years when the savings have
repaid the initial investment; thus,

I = s, + s, + ’ * 1t s,,. (3)

Although simple payback is an imperfect evaluation instrument, it is ideal for the present
analysis because it is one of the few evaluations used both by energy experts and by families.
Families who made major efficiency investments were more likely to compute their savings.
A few computed payback explicitly; others made less explicit statements about whether energy
changes “helped with the bill.” The families most frequently reporting payback were those whi,
recently had invested in wood heating equipment. If they had a free source of wood and
ignored their own labor, the reported payback period was short, often one or two years. As we
shall demonstrate in the next section, when payback period is this short, the folk payback
method yields a good approximation to the energy expert’s method.
For longer paybacks, the folk method lengthens the computed time to payback, because it
does not adjust for escalating prices. We found several cases of this; here we quote from one
family which seemed especially thorough in their computations.? Perhaps because of their
occupations (the husband was a systems analyst and the wife had been a bank clerk) they
recorded utility bills in a notebook and tried to calculate “how short a time we could get the
insulation to pay for itself.” Although they acknowledge they should compute from energy
units, they in fact use the folk method, based on dollars. They say: “It’s hard for us to figure the
difference between what we would have used compared to what we did use.” In their written
records, as in the record of Fig. 1, years were compared by dollar totals. From these records
they concluded that the insulation had not paid for itself, and cited other benefits, such as
comfort and home resale value, to justify their purchase. In short, their payback calculation

tThis family’s calculation of payback is discussed more fully in Ref. 31.

 Folk quantification of energy 823

fails to adjust for fuel price increases and undervalues financial savings, as predicted by Eqs.
(2’) and (3). The predominance of dollar measurements in this case and in our other interviews
leads us to predict that even if more consumers learned the energy expert’s method for
computing payback, most would continue to use the folk method. The problem is not simply
lack of information.
How do we explain folk methods which work against the goals of their users? We believe
this is an example of what Simon calls bounded rationality.‘~*’ Simon shows that people adapt
known methods to new problem solving situations, even if the known methods are not optimal
for the new problem. Simon argues that this is often a reasonable strategy, since it avoids the
effort of thinking through new methods. Our findings about energy quantification are also
consistent with studies by Gladwin,” Lave”,” and Quinn24 of math problem solving in small
commercial transactions. They show that people use approximate but easy methods rather than
the precise arithmetic calculations taught in school.

COMPARISON OF THE TWO PAYBACK MODELS

How can retrospective folk payback calculations affect energy conservation? Studies of
adoption of innovations demonstrate that people evaluate past actions in order to plan future
changes, and to make recommendations to others.2s-27Moreover, experience gained firsthand, or
by a friend, is weighed more heavily in decisions than an impersonal data summary, even if the
latter is based on more information.28.32If a family concludes that its energy conservation
efforts have been ineffective, they will be less likely to recommend the same actions to
neighbors or to take further energy actions themselves. Because we believe retrospective
evaluation strongly affects future adoption, we will make a quantitative comparison of the folk
and expert methods for computing payback.?
The simplest folk payback method divides the investment cost by the first period’s savings.
The payback is n years, computed as

h = 1/s;, (4)

where S{ = C,,-- C,. For example, if an energy investment was $400, and the following heating
season yielded bills $100 lower, the folk model would call this a four-year payback. The dollar
measurement underestimates savings, as shown by Eqs. (1) and (2), and thus overestimates the
payback period. Other related folk methods are possible; we will analyze the method of Eq. (4)
because it seems to be used commonly, and because it yields results intermediate among others
we have identified.
The corresponding expert method computes from energy units and adjusts for fuel price
increases. Combination of Eqs. (1) and (3) shows that payback is achieved when

I = (E,, - E,)(P, + P2 t . . . + P,). (9

To simplify the series of terms for price, we assume steady real price increases of f, so that
P, = P,,(1+ f) or generally for any year y, P, = P,( 1 t f)Y. Since the right side of Eq. (5) can be
expressed as a geometric series, it can be reduced to

1 = OS-.W’,[l -Cl +f)“l/Il -(I +f)l,

which is readily solved for n. With two simplfying conventions, to express investment and

‘In the following comparison. we simplify the algebra by assuming zero inflation and zero discount rate (thus. real
dollars equal nominal dollars. and future benefits equal benefits discounted to present value). Such simplifications are
consistent with the normal use of simple payback. These are conservative simplifications. in the sense that they work
against our argument. Nevertheless. we are able to demonstrate that the folk method computes a significantly longer
payback than the expert method. This difference is even larger with reasonable figures for inflation and the discount rate, as
we shall demonstrate.
824 W. KEMPTON and L. MONTGOMERY

energy change as ratios, the expert payback model can be written as

n =ln{l +UM(l+f)(l-r)]}/ln(l+f), (6)

and the folk model of Eq. (4) as

n = i/[l -(l tf)r], (7)

where n is payback period, f is fuel price escalation, i is investment as a proportion of fuel cost
(I/C,), and r is energy change ratio (El/E,). Note that we use Eq. (7) to evaluate the folk
payback model, but consumers would actually use the simpler Eq. (4). Since we are primarily
analyzing heating changes, evaluated seasonally, we will express n in years and f in change per
year, although they can be in any consistent time units. The terms i and r are dimensionless.
Equations (6) and (7) allow us to compare the two payback calculation methods as i, f, and r
vary. Each variable will be plotted individually, assuming a reasonable base case for purposes
of illustration.
Figure 2 shows the effect of fuel price escalation on payback period. The figure assumes a
30% reduction in energy use (r = 0.7) and an investment equal to one year’s preimprovement
fuel cost (that is, I = Co, thus i = 1.0). The folk and expert methods yield equal results if fuel
prices remain constant. At annual price rises of 0.15, which is a minimal figure for the period
preceding our interviews, the folk method estimates that the payback period is more than twice
the time of the expert method.
Another possible expert method, which did measure energy units but did not consider future
price increases,? would appear in Fig. 2 as a horizontal line at 3.3 years. The folk method would
still significantly overestimate payback period. Therefore, the overestimation error of the folk
method is due primarily to its dollar measurement; its failure to consider future price increases
has a less significant effect.
Figure 3 illustrates the effect of percentage energy reduction on payback. The investment is

7-

8-

l-

0 I I I I 1 4
0 .05 .lO .15 .20 .25 .30

Fuel price escalation

Fig. 2. Payback period as a function of fuel price escalation. as computed by the folk model and the expert
model. The curves are derived from Eqs. (6) and (7). Both curves assume an investment equal to one year’s
fuel cost, and a 30% decrease in energy use due to the investment.

tFor example, some energy auditors assume zero fuel price increases (f = 0) as an approximate way of discounting
future benefits to their present value.
 Folk quantifioation of energy 825

10

z
‘= 0
Q)
n
Y 5
0
p”
4
6
a
3

I I I I I I I I I I
0 10 20 30 40 50 60 70 80 90 loo

Percentage energy reduction

Fig 3. Payback period as a function of energy reduction, computed by the folk and expert models. Both
curves assume annual fuel price increases of 0.15 and an investment equal to one year’s fuel cost.

again assumed to equal one year’s fuel cost (i = l), and the fuel price escalation is set at 0.15.
On the abcissa, energy reduction is labelled as a percentage [percent reduction is equal to 100
(I - r)]. Figure 3 shows that when energy reduction is large, estimates of the payback period are
approximately equal by the two models. When energy reduction is less than about 40%,
however, the folk method significantly overestimates payback period. In fact, small energy
reductions will never pay back under the folk payback model, since the curve is asymptotic to
23%. The expert curve is asymptotic to 0.
Finally. Fig. 4 shows the effect of investment cost on payback (assuming f = 0.15, r = 0.7 as

0 .2 .4 .6 .a 1 1.2 1.4 1.6 1.8 2 2.2 2.4

Investment
Fig. 4. Payback period as a function of investment (investment is expressed as a proportion of annual fuel
cost), computed by folk and expert models. Both curves assume annual fuel price escalation of 0.15 and a
30% decrease in energy use due to the investment.
826 W. KEMPTON and L. MONTGOMERY

Table 3. Effects of inflation and the discount rate on the two payback models. As before, the base case is f = 0.15.
r = 0.7, i = I. The numbers in the matrix are folk payback years divided by expert payback years, thus numbers greater
than one represent an overestimate by the folk method. Discounting is conservatively assumed to aff ect only the expert
method.

5 2.42 2.07 1.66 1.14

10 3.10 2.65 2.13 1.47

15 4.31 3.68 2.95 2.03

I I I I

before). When the investment is less than one-third of annual fuel cost, the payback period is
short, and the two models are comparable. For large investments, the folk model yields much
longer payback periods.
In short, the two models yield similar results when fuel prices are nearly constant, or when
investments are highly cost-effective (small cash outlays or large energy reductions). However,
a wide intermediate range of cost-effective measures exists for which the folk model causes
negative evaluation by the people who have adopted the measures. If fuel prices continue to
escalate, we predict a continued bias against cost-effective energy investments.
The preceding discussion did not consider inflation and the time value of money. Each of
these factors increases the payback period of one model; together they approximately coun-
terbalance each other. General inflation further increases perceived fuel price escalation. Thus,
under the folk model, inflation would further reduce apparent first-year savings and increase the
payback period. When the expert considers the time value of money, future fuel savings will be
discounted, thus increasing the payback period as computed by the expert. These effects can be
included in the algebra by adjusting the fuel price escalation factor f. Payback is again
computed from Eqs. (6) and (7) with f adjusted differently in each equation:

expert f = fr,,, - real discount rate,

folk f = flea,t general inflation.

We do not assume that the folk method discounts future benefits. since our case can be made
without doing so (if we did, our case would be strengthened further.)+
In Table 3, each entry is payback years of the folk method divided by those of the expert
method. The effect of inflation is greater than the effect of discounting. For example, 5%
inflation and a 10% discount rate produce about the same two-to-one ratio of expert to folk
payback as does the 0% base case. The folk method computes a longer payback in all but one
instance, the extreme case of no general inflation and 30% discount rate. Note that the folk
method overestimates payback even when the discount rate exceeds the fuel price escalation
rate.
CONCLUSIONS

Using ethnographic techniques, we have analyzed how consumers perceive and measure
residential energy. Folk quantification provides approximate measures, with minimal effort to
collect and process information. Using principles of cognitive science, we have explained why
consumers choose folk methods over more accurate ones. We make the additional finding that,
in the case of energy, measurement inaccuracies are not randomly distributed. They are
systematically biased in ways that cause less energy conservation than would be expected by
economically rational response to price.

+If we wanted to include a discount rate in the folk model. we would not have any good data with which to estimate this
rate. The problem is that figures published as the implicit consumer discount rate include many other effects, such as the
measurement problems discussed in this paper. As a result. the literature reports implausibly wide variation in discount
rates for energy equipment purchases. A IS to 25% discount rate is reported to be implicit in air-conditioner purchases’Y
but 42 to 300% in refrigerator purchases.“’
 Folk quantification of energy 827

Acknowledgements-We are grateful for support and assistance from our colleagues on The Family Energy Project: R. P.
Boger, F. D. Case, P. M. Gladhart, C. K. Harris, D. R. Keefe, J. G. Keith, B. M. Morrison, B. D. Neff, and L. J. Nelson.
We especially acknowledge Harris for his extensive comments and suggestions. Also, J. M. Darley, D. S. Dwyer, A. V.
Millard, and S. M. Rennie made particularly helpful criticisms, and B. Schlagel, K. Warsco, and M. Wojno helped conduct
interviews.

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