Tail-Risk Comprehension and Consumer Protection in Real-Time Electricity Pricing : Experimental Evidence

Do households comprehend the nature of price tail-risks inherent to real-time electricity pricing plans? We develop a randomized and incentivized experiment calibrated to real-world price distributions and find that (a) probabilistic risk disclosure elicits greater demand for real-time pricing (RTP) products relative to a low-risk fixed-price alternative but without improving comprehension of tail-risk inherent to RTP, (b) products with tail-risk protection are not highly sought, and (c) the experience of a RTP bill shock usually improves risk comprehension and drives choice to less risky products. We discuss the implications these findings may have for regulators with a consumer protection mandate