Classwork 8

Information and Behavioral Anomalies

Scenario

A rental building from the 1980s has an outdated heating system.

• The landlord decides on the heating system but tenants pay the energy bills.
  
• Most tenants are unaware of efficiency ratings or lifetime energy costs.
  
• There is no submetering — heating costs are averaged into rent.

Part 1 — Identify the Market Failure

Task: Identify two market failures (excluding behavioral anomalies) present in this situation and briefly justify.

• Market Failure 1: ___________________________________________
  \(\qquad\) → Because ___________________________________________________
  
• Market Failure 2: ___________________________________________
  \(\qquad\) → Because ___________________________________________________

Part 2 — Behavioral Lens

Task: Identify which behavioral anomaly (bounded rationality, bounded willpower, or bounded self-interest) may prevent efficient upgrades.

• Behavioral factor: __________________________________________
  \(\qquad\) → Manifestation in this case: ________________________________

Part 3 — Policy Design Using the Four Pillars

Fill one policy instrument or solution under each pillar that could address this situation.

Policy Pillar	Your Proposed Solution
💰 Incentives	_________________________________
🧠 Information	_________________________________
🏛 Institutions	_________________________________
🤝 Social Norms	_________________________________

Part 4 — Reflection Question

Why might information campaigns alone be insufficient to fix this problem?
Write a brief explanation (2–3 sentences).