Behavioral Economics and Climate Change Policy
AbstractThe policy recommendations of most economists are based on the rational actor model of human behavior. Behavior is assumed to be self-regarding, preferences are assumed to be stable, and decisions are assumed to be unaffected by social context or frame of reference. The related fields of behavioral economics, game theory, and neuroscience have confirmed that human behavior is other regarding, and that people exhibit systematic patterns of decision-making that are "irrational" according to the standard behavioral model. This paper takes the position that it is these "irrational" patterns of behavior that uniquely define human decision making and that effective economic policies must take these behaviors as the starting point. This argument is supported by game theory experiments involving humans, closely related primates, and other animals with more limited cognitive ability. The policy focus of the paper is global climate change. The research surveyed in this paper suggests that 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. Humans are unique among animal species in their ability to cooperate across cultures, geographical space and generations. Tapping into this uniquely human attribute, and understanding how cooperation is enforced, holds the key to limiting the potentially calamitous effects of global climate change.
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Bibliographic InfoPaper provided by Rensselaer Polytechnic Institute, Department of Economics in its series Rensselaer Working Papers in Economics with number 0701.
Date of creation: Jan 2007
Date of revision:
Other versions of this item:
- C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
- D6 - Microeconomics - - Welfare Economics
- D7 - Microeconomics - - Analysis of Collective Decision-Making
- D8 - Microeconomics - - Information, Knowledge, and Uncertainty
- Q2 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-01-28 (All new papers)
- NEP-CBE-2007-01-28 (Cognitive & Behavioural Economics)
- NEP-ENE-2007-01-28 (Energy Economics)
- NEP-ENV-2007-01-28 (Environmental Economics)
- NEP-EVO-2007-01-28 (Evolutionary Economics)
- NEP-NEU-2007-01-28 (Neuroeconomics)
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