The transition towards deregulated energy markets requires a dynamic participation
by consumers. Yet, in many European countries, a high degree of consumer
inertia is observed: the rate of switching to new tariffs and providers is far from
being satisfactory. Neoclassical consumer choice models cannot explain this phenomenon,
unless assuming that perceived transactions costs are disproportionately
high. This paper discusses how more realistic assumptions about consumer behavior
can help interpret low switching rates. In particular, it examines psychological
aspects (e.g., loss aversion, present bias, ambiguity aversion) and cognitive biases
(e.g., choice overload, overconfidence) that can explain consumer stickiness in energy
markets. Different behavioral traits point at different policy interventions.
Therefore, such analysis illustrates how crucial it is that policy-makers aiming at
reducing consumer inertia take these behavioral aspects into account and make use
of experimental testing when laying out interventions