The Gambler’s Fallacy- How It Affects a Homeowner’s Perception of Their Electricity Prices
During my junior year of college, I was introduced to the concept of "heuristics" and the grasp they have on our minds. I had never heard of the word before then and was even confused after the professor gave a definition and examples. This was expected, as college exists to teach you new information and develop a well-rounded mind that, in turn, would make me beneficial to society in more ways than one. Now that I have a grasp of them, I see a common fallacy that brews in the minds of homeowners. I'd like to dive into heuristics, how they play with the mind, and how one specific kind completely hinders our perception of the electric bills we get every month.
Psychology Today's definition of a heuristic:
"A heuristic is a mental shortcut that allows an individual to make a decision, pass judgment, or solve a problem quickly and with minimal mental effort. While heuristics can reduce the burden of decision-making and free up limited cognitive resources, they can also be costly when they lead individuals to miss critical information or act on unjust biases."
After reading that...Aren't you confused? I sure was! What does it mean that it "allows" us to make a decision? How can something like this exist? I'm in control of my brain and I always use my best judgement when making decisions. Well, everyone believes they make their best judgements. The reality is this- our brain "convinces" use we make the best judgements by using heuristics. Another term would be "mental shortcuts", things that allow our brain to convince itself it made a wise decision, despite cutting corners and implying things that "feel" true. It allows use to make "quick" decisions that puts confidence in our conscience.
There are many heuristics that our brain uses. The one of focus has been coined the "Gambler's fallacy". It is also referred to as the "Monte Carlo fallacy". It's exactly as the former name suggests. This a mental shortcut that makes gambling so dangerous to those who do not understand heuristics. This also makes homeowners, who look at their bill or see news of price increases or extra fee charges, very naive to their situation. Gambler's fallacy defined:
The gambler's fallacy, also known as the Monte Carlo fallacy or the fallacy of the maturity of chances, is the belief that, if an event (whose occurrences are independent and identically distributed) has occurred more frequently than expected, it is less likely to happen again in the future (or vice versa). The fallacy is commonly associated with gambling, where it may be believed, for example, that the next dice roll is more than usually likely to be six because there have recently been fewer than the expected number of sixes. (Wikipedia)
So, as defined, a gambler attempts to justify their next decision based on the most recent events. A quick decision that easily convinces the conscience of "one more role". You, as a homeowner, are playing the same game and making the same mistake with an electric bill.
In 2022, most homeowners saw the price of their electricity generation over double. If you don't believe me, you can read this article. Most people will take the results of this event and imply the gamblers fallacy.
"The rates just doubled last year, they won't do it again."
on the opposite, when things are going good,
"Prices have been fairly stable, I doubt something like that would happen."
Do you think anyone, in 2022, really thought the latter- that generation prices were going to double within a year? They didn't think that. Do these same people now fall into the former statement above? Absolutely. Do recent events really have an effect on the probability and volatility on future events? The Gambler's fallacy says they do not. There are equal chances bad things can happen as good things. What if your electricity rate increased tomorrow? What would you do about it? What COULD you do about it? Are you just going to keep paying whatever they dictate to be a “fair” rate?
This does not say we should stop looking at historical trends as a whole to try and predict the future. Based on years of data, electricity rates rise about 6-7% per year (the national average). This trend is used to calculate how much you would save over the life of your system.
This is the biggest reason for "going solar". Simply SEEING and KNOWING exactly what you will pay in electricity for many years provides the benefit of a term I use a lot, called "price protection". It's a peace-of-mind move for homeowners. What if your mortgage, or car payment, was this same sort of concept of electricity. It varied every month, and you never know when the rate might increase or decrease. It would totally put people in fear. Home and car purchases would be thrown in the mud. Yet, homeowners find it acceptable to let their electric bill do this. WHY do that to yourself?!? Now, with recent rate increases and the cost of a system, it is even an immediate reduction in your monthly bill.
Of course, there are other reasons that homeowners go solar, and they all play into each other. Some people look to save as much money as they possibly can; or simply for the clean, renewable energy generation. The consensus is this- you can have all of them!
If you want help reading your electric bill and understanding the details of going solar, please reach out to me. My contact information is plastered all over my website or you may submit a contact form.
Noah Koppenhaver | Solar Professional
(717) 756-8363