Recently in Behavioral economics Category

Government assuages existentialist climate anxiety

We certainly have seen it coming.   We have known about global warming for decades.  You can, and should find excellent science papers, government reports and planning scenarios.

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In the last few years we have been shocked to see it unfold faster than predicted.   Almost daily there are palpable indications and new science studies on the increasing rate-of-change.   We had better pay attention closely.   The inevitable sea level rise, drought, floods, biological disruption, species extinctions, and heatwaves that will lead to social disruptions and conflicts over diminishing resources.  Expect millions of climate refugees.

To those of us who read and listen and follow this, it gives us worry and general anxiety.   We who like to think we have both knowledge and civility prefer to carefully evaluate a next move.   But the world population may not.   People will soon discover the explanation for their inexorable suffering from drought, heat, flood and famine.   They will hear predictions of more of the same to come - unfolding as the climate destabilizes.   This is real global anxiety.   It is easy to see why complete denial of global warming is so comfortable.  The reality is far too disturbing.

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Greenhouse warming and climate destabilization does not halt magically in the year 2100.  That’s just a convenient calendar benchmark.  It will continue for many hundreds of years hence.   Today, humans forced to plan 20 or 30 years ahead will have to adjust and adapt in ways we never expected.   Back then, we were calm about our climate future; whereas now, you and they - will be - should be - very anxious.   To predict that within a few generations our species will completely perish - is not only possible, it is scientifically plausible.  Barring a technological breakthrough, an alien invasion or colossal volcanism, it is certain that young children today will face serious climate survival struggles in their adulthood.  No one wants that, and we might be able to mitigate the damage, but even a prediction of minimal climate calamities ahead cannot be avoided.

This means that our geography, agriculture and infrastructure will be changing radically and we will cling desperately to what remains of our civil society.   Worldwide hardship.  Curiously, the developed world may face the greater challenge, if only because we lack experience in simple, sustainable living.   In any case, future climate victims - with no resources, will seek survival, safety, food and water, from nations and people that have resources.   Many may wither and die, and many may panic to survive.   Those who have sufficient wealth and assets to insulate themselves from other human suffering, will be forced to manage and defend their wealth and resources from attacks by those seeking survival.   This may apply to many conflicts today: Darfur, Somalia, and Peru with it’s loss of fresh water glacier melt.   Increasingly, desperate people will conflict with the affluent in boundary squabbles.   Within any nation state, social destabilization is inevitable as climate destabilization moves forward.  Again, we do not know the rate of change.

GENEVA, June 23 (Reuters) - Global warming must be seen as an economic and security threat, former United Nations Secretary General Kofi Annan said on Tuesday, calling on poorer countries to speak louder about their climate change needs.
In an interview, Annan said he chose to focus his retirement energies on environmental risks because he believes that left unchecked, they could destabilize both rich and poor countries.
http://www.reuters.com/article/featuredCrisis/idUSLN472597

Over the millennia, humans have been blessed with a rich, stepped history of advancing civilizations - including Rome, Greece, the Mayans, the Incas, the Egyptians and China.   Measured culturally, legally, medically, socially, architecturally, scientifically, techno engineering, exploration and even by self-actualization or military conquest, we are at the peak of global civilization.   In an increasingly warming world with many feet of sea level rise, heat waves, disease, famine and climate strife, clearly not all these peaks of humanity will continue to rise.   Whether measuring a future in years or decades, the rate of social decline will be consistent with increasing climate destabilization.   It is hard to imagine many great, sustaining breakthroughs in Western civilization soon.   Or for many centuries.

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I would be thrilled to be proven wrong, but it seems prudent to face facts and plan appropriately.

We come together under our brand of social contract to serve our common interests, to abjure political violence, and protect peaceful interests of citizens.   Justice and law cement the social order.   Continuously escalating climate destabilization will severely test any social structure as humans strive to adapt.  Climate adaption is by definition is a local action, a social effort that serves the present moment.   Whereas, mitigating climate change requires a globally unified, shared effort.   In the slow chemistry of climate, acts of mitigation require up to a half-century for effects to be seen.   Without external political pressure, it is difficult to image any nation/state/organized society wanting to apply resources toward meeting a 50 year goal.

Governments are crucial to helping with local adaptation, and a world government is crucial to driving serious mitigation efforts.

The Precautionary Principle

Global Warming denialists have lost the ethical battle.

It’s fascinating to see people newly awaken to the issue of global warming.  They often stand with wide open eyes, stammering about the enormity of the problem.  Each seems to harbor an unstated foundation: the Precautionary Principle - Every mother tells her young child  “If you are ever unsure about whether something might hurt you - then don’t do it.” 

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  This rule applies to gathering wild mushrooms, using chemical insecticides, and talking with strangers.  Now mother’s rule can also apply to global warming: when our activities threaten to harm human health or the environment, then precautionary measures should be taken.  Even if some cause-and-effect relationships are not scientifically fully established.

…The principle implies that there is a responsibility to intervene and protect the public from exposure to harm where scientific investigation discovers a plausible risk in the course of having screened for other suspected causes.  The protections that mitigate suspected risks can be relaxed only if further scientific findings emerge that more robustly support an alternative explanation. In some legal systems, as in the law of the European Union, the precautionary principle is also a general and compulsory principle of law.   from Wikipedia


This strongly ethical statement elegantly applies to global warming as seen in the introductory video to the Manpollo project.  It asks   “Given the risks and uncertainties of global warming, what is the best action to take?” 

Concluding that since the stakes are so high, we need to act appropriately despite any uncertainty.  Why is there anything less than full agreement?

  Intentional commercial pressures stifle unified action on global warming and feed the ideological resistance.  It is easy to blame the persistent but effective PR campaign pushing global warming denial , producing bad science and promoting the false notion that the problem is not really serious and humans cannot do anything about it.  Such blather - funded and promoted by the carbon fuel industry - is readily accepted by the carbon devoted public.  But cheerleading for carbon loyalty is so far outside of ethical principles that it amounts to encouraging species suicide.  Professional denialism is a short term business tactic.   By contrast, the insurance industry deeply understands global warming and expects to profit from it.  They follow the science closely in order to stay in business.  Carbon fuel companies feel compelled to do the opposite.

This is why professional global warming deniers are beginning to be so reviled, because beyond denial, they reject the precautionary principle - hence losing the ethical battle and reveal their ideological and corporate colors.  This was expressed recently by Patrick Michaels of the CATO institute who has been promoting the business-as-usual line “Nothing to worry about here, move along”.  The CATO institute is a paid messenger of the Coal Industry.


One prefers to see the well-behaved skeptic/denier retain some human ethics while expressing doubts about global warming.  It seems wise to add a phrase like “since the stakes are so high, we better proceed with caution and act prudently no matter what the science says”.   When the CATO institute treats us to the blatant advocacy of carbon capitalism then it touches the twin evils of scientific duplicity and amoral actions.   

The newest denialist tactic is to demand a change in terminology. Some global warming treaties have had to abandon the term: ‘precautionary principle’ changing instead to the ‘precautionary approach’.   Possibly because a principle can be a legal foundation for law, whereas approach is diffuse and carries no commitment.  My mother would never have allowed her edict to be called an approach, and I hope all mothers will stick with principle.


Up until now our civilization has thrived on high risk innovation that ignores principles of precaution.  Risk has been the essence of Western capitalist growth.  And it is no longer working, either in matters of finance or atmosphere.  Risk should be managed, controlled or insured.  We have either ignored or strategically ignored the fundamental axiom of respect for the future of human life.

Today, all the basic questions about global warming science are sufficiently settled to make public policy.  This is not rocket science. So much has been written by universities and science foundations that any reasonably dedicated person can come to understand the basic science.   Today, no sane and sober scientist will deny global warming

or that it is is caused by greenhouse gasses.  However public opinion remains vulnerable to mass media marketing schemes, and humans maybe hardwired to ignore the threat. And very big and serious lobbyists have redoubled their efforts.   But now we enter an era where the real impacts of global warming will directly touch all populations and denialist challenges will mean little before real heat, real melting, real privation and sea level rise.

The Precautionary Principle continues to guide us as we grow to understand that the cost of mitigating climate change is far less than the cost of adapting to change .  Denial, or to refuse to act on either is a short-sighted, immoral choice.

The Ultimatum Game in the Garden of Eden

… behavioral economics, game theory, and neuroscience have confirmed that human behavior is … “irrational” … the standard economic approach to climate change policy, with its almost exclusive emphasis on rational responses to monetary incentives, is seriously flawed. In fact, monetary incentives may actually be counter-productive.”
— John M. Gowdy   http://www.economics.rpi.edu/workingpapers/rpi0701.pdf

So completely settled is the science of global warming that arguments among climatologists are now mostly about the “when?” and the “how bad?”     DawnCityCrspp.jpg
No one wants the climate to destabilize, few want to hear much more about global warming, and damn few want to make the necessary changes to face the problem.   It’s necessary to move beyond the hard sciences if our goal is to discover how to best mitigate and adapt.   We must engage other disciplines in our effort.

Even though reacting to climate change requires a colossal and unified crusade, there is no assurance - neither scientific, nor human - that we will prevail.   We may all agree that we must survive, but the hard science says survival could go either way.   The most active variable in the equation is the human one.   Now, more than any other time, our future depends on controlling our output of greenhouse gases.

To build the necessary world-wide campaign we must expand our studies to include political science, public policy, law, marketing, persuasion, and other soft sciences.   In order to build, sustain and enforce cooperative efforts, both the leaders and participants in this campaign need a prerequisite understanding of human psychology, economics, game theory, and behavioral psychology.

Ultimatum2.jpg The fields of behavioral economics and behavioral finance attempt to integrate psychology with economic theory.   Researchers use a range of observations and surveys, but may draw upon one deceptively simple experiment to measure the satisfaction, trust and the fairness of simple economic transactions.   It is called the Ultimatum Game.

The experiment goes like this:   With only two subjects, one receives a sum of money that both will agree on how to split.   One decides how much to give to the other - the other person may accept or reject the offer.   If accepted then both keep whatever money they hold.   However, if the other person rejects the offer - then by refusing - prevents both of them from getting any cash.   Game over; the test only is given once.

Results differ; many test subjects settle on a 50%-50% split.   Some accept a smaller percentage - but rarely less than 20%.   Interestingly, the data for Western subjects measures slightly more - 30-40%… suggesting a greater willingness to cut off all wealth gain until reaching a higher fairness level.   It is important to remember that recipients know the rules of the game, know the total cash amount in the game and know the consequence of their decision to accept or reject. 

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When pondering ramifications, economists prefer to think of humans as rational actors who would logically choose the best deal in any situation.   Rational actions are easier to formulate and model.   However, an irrational choice - like rejecting all money and ending play with nothing tangible - is harder to understand.   Does the player have an irrational sense of fairness?   Or do players expect a certain level of shared suffering or shared reward?

Because the Ultimatum Game uses real money, it may connect with reality in ways that other games might not.   Depending on the weight of the irrational, players of the Ultimatum Game finish with cash or with nothing .   Every day in the real world, the owners and consumers of carbon based energy grow richer or poorer, stronger or weaker, healthier or ill, depending on their energy transactions.   It may be fueling transportation, heating homes, or providing electricity for manufacturing.   Slowly, as these consumers begin to understand that all fossil fuels increase CO2 and contribute to global warming, this means their daily energy transactions get a new variable to consider.   The rational benefit of energy begins to take on the taint of the irrational burden of knowing this is causing real damage.

Our civilization is in the midst of a real-world experimental play of the Ultimatum Game.   One player redistributes great carbon energy wealth pulled from the earth, and the other player receives the benefit of that offer.   Our incredibly cheap energy from coal, oil, and natural gas combustion all release CO2 into the atmosphere.   CO2 reacts slowly, but directly contributes to greenhouse heating in the atmosphere.   The effects of CO2, not obvious at first, is very real - it slowly traps heat, warms the atmosphere globally which destabilizes climate.   We are killing ourselves.  We can no longer exclude this fact from considered commercial transactions

Behavioral economists have another test - a related game called the Dictator game.  Here the player with cash keeps as much as they wish - whether or not an offer to share is accepted.   Predictably, dictators offer far less money to the other player, keeping a larger share of the cash.   With no real choice, the recipient player most always accepts unequal money in any amount.

In the marketplace of energy, the ultimatum and the dictator analogies apply because in our civilization game, energy is a vital element required of both commerce and survival.   The recipient player can assume both attitudes - the player demanding a fair share - at other times the player accepting whatever is offered.

Typically, fossil fuel commerce might include a privileged holder of energy wealth, sharing or selling to a less privileged player.   The less privileged ones may accept a dictated market price, favorably received until the deal changes unacceptably, the player refuses and it the becomes an ultimatum game.   Perhaps the privileged one goes too far in crossing some personally defined line.   Maybe the player senses a deceit, some manipulation, denial, an ethical transgression or other irrational motive.   Now, with new information, players must include future ramifications of any energy deal.

Both the Ultimatum and the Dictator games seem to fit into scenarios of the market play of Big Coal and Big Oil in our economy.   Carbon fuel industries - with a monopolistic lock on the market - will sell energy and heavily promote full consumption of all they can deliver.