Undercover Economist

The Switch Doctor

Next time someone knocks on your door or telephones you and tries to persuade you to switch electricity suppliers, try to do better than a fellow who, to spare his blushes, I’ll just call ”Mr Blockhead”. According to research by two British economists, Chris Wilson and Catherine Waddams Price, Mr Blockhead managed to make himself ₤100 a year worse off by switching, rather than choose a tariff that would have saved him ₤50 a year.

Mr Blockhead isn’t alone. Another genius had such an uncompetitive tariff that he could have saved ₤150 a year – but he somehow managed to find an even worse tariff and switched to it. Of 250-odd people who had moved supplier with the avowed purpose of saving money, most picked up less than half the available gains, and about a quarter actually made themselves worse off.

For some people, this is reassuring confirmation that they’re not alone. For economists, it’s worrying. We’re now used to analysing markets where customers don’t always switch to the cheapest deal. Sometimes it is costly to search for alternatives. For example, you might want a cheaper cup of coffee, but not want to wander around trying to find one. At other times, it’s easy to see a cheaper alternative, but still reject it – perhaps you need to pay by direct debit and would have to fill in a lot of paperwork.

But Mr Blockhead went to all the trouble of searching and switching, yet still managed to pour money down the drain…

Continued at ft.com, subscription free.