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Peer Pressure and Other Pitches

More businesses are using behavioral economics to appeal to customers, seeking to capitalize on the notion that people don’t always act in their economic self-interest.

Behavioral economics is popular among academics, particularly since two of its early theorists won the 2002 Nobel Prize in economics. Now businesses are applying the concepts in new ways.

Since April 2008, the Sacramento Municipal Utility District has told 35,000 customers in their monthly bills how their energy use compares with neighbors’, and with the district’s most-efficient customers. Customers who received the additional information cut their energy use by 2%, compared with a similar group of users who didn’t get comparison data.

“Taking a behavioral approach completely changes the way you view the consumer,” says Richard Thaler, a behavioral science and economics professor at the University of Chicago’s Booth School of Business.

Economists typically “assume that the consumer sorts through all the possible options and picks the one that is best for them,” Mr. Thaler says. “That ignores the complexity of sorting through all of those options.”

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