The Habit Forming Effects of Feedback : Evidence from a Large-Scale Field Experiment

We propose an attention-based mechanism for habit formation and contrast its predictions with those from Stigler and Becker's consumption-based mechanism. We develop a habit formation model that nests both mechanisms and structurally estimate it using data from a large-scale field experiment in shower water consumption that varies the duration of salient real-time feedback cycles. Combining our field experiment and structural model we show that habits form quickly and decay slowly, validate the quantitative importance of attention dynamics as the underlying behavioral mechanism, and uncover a new solution concept for optimizing feedback interventions to create sustained behavioral change