If you were to count the number of times in one day when your actions don’t match your intentions, what do you think the tally would be? This is a perfect example of what behavioural economics pivots on; the notorious intention-action gap. Here Joshua Gordon, writing for FirstRand, gives everyday examples of how easily things can go pear-shaped when the motivation is skewed, or the incentive fails to match the pragmatic enabling mechanism. Today, how and why people make decisions is a cutting-edge science used to shape behaviour to achieve societal, political and business goals. It’s as critically important in climate change (a long-term concept that most people cannot relate to their present-moment realities – unless, of course, you talk about global warming on a particularly hot day) as it is to ARV drug compliance for someone who has Aids. A fascinating read that boils down to our very human condition and evolution as a species. This article was first published on FirstRand Perspectives. – Chris Bateman
Behavioural economics in action – climate change
By Joshua Gordon
Behavioural economics in action – climate change
A qualified high school student is accepted to university but gets confused while applying for financial aid and fails to enrol. An individual with HIV is prescribed free antiretroviral medications but fails to take them consistently. The government creates a social programme to provide cash grants to families when children attend school, yet attendance does not improve. Some of society’s thorniest issues are not a failure of intention, merit or importance. These failures are rooted in failing to understand human behaviour at the last mile, the final hurdle where intention translates to action. We can think of it as the intention-action gap. These are the types of problems behavioural economics attempts to address.
Behavioural economics uses psychological experimentation to develop theories about why and how people make decisions. In contrast to neoclassical economic models, behavioural economics recognises that people are not always self-interested, utility maximising, entirely rational individuals with stable preferences.
Behavioural economics asserts that our thinking is subject to insufficient knowledge, limited cognitive processing capability, uncertainty and is affected by the context in which we make choices. How hard would it be to calculate 12 x 24 while driving at 140 km/h?
Behavioural economics has found that most of our choices are not the result of careful deliberation. Instead, decisions are influenced by readily available and salient information. People live in the moment, in that we tend to resist change, are poor predictors of future behaviour, are subject to distorted memory and are affected by psychological and emotional states. We are social animals with social preferences. Trust, reciprocity and fairness are essential to us, and we are susceptible to social norms and the need for self-consistency. The literature is vast and has posed credible challenges to traditional economic approaches.
Understanding why and how people make decisions allows us to understand why issues like climate change are hard to solve, but it also provides a framework for thinking about what can be done about it.
Behavioural economics and climate change
Traditionally conservationists have assumed that the most effective way to convince people to participate in sustainable behaviour was highlight the catastrophic consequences of the status quo. While 63% of Americans say climate change does affect their local communities, no amount of culpability has successfully encouraged the masses to turn off the lights when they leave the bathroom, co-ordinate loading the dishwasher, fly less or recycle more.
Other conventional policies such as banning misbehaviour (think corporation dumping refuge into rivers) or tax credits for green investments have a disjointed record. People don’t behave the way traditional economic models expect them to.
Kevin Green, the senior director at the Centre for Behaviour and the Environment at Rare, a conservation organisation, claims, “We had hoped that if we just tell people how bad it is, how much we’re screwing things up, they will change their behaviour, but it doesn’t work that way.”
Getting society to make lasting change requires a nuanced understanding of the often emotional and social reasons people make choices. Behavioural economics has shown that individuals are not only less rational than policymakers assume, but are also ill-suited to addressing environmental problems.
Problem
For starters, people indeed have trouble prioritising future concerns over current needs. Psychologists call this present bias. Think about the classic marshmallow test. Children are given one marshmallow and are instructed that the adult will leave the room and return in 15 minutes. If the child does not eat the sweet, another one will be given. If the child eats the sweet, they will not receive more. You can guess what happens next. Present bias makes it hard to convince people to make drastic lifestyle changes today to prevent some abstract, slow-moving, catastrophes down the road.
Additionally, people tend to be too paranoid to co-operate with people we do not know to protect a shared resource. For example, a campaign in the late 1990s in an English town, which aimed to encourage residents to use less water during a shortage, ended up inspiring the opposite (think toilet paper rush during Covid-19 or water bottle stockpiling in Cape Town).
Where either strong community bonds or financial incentives were absent, residents ended up consuming more water than usual for fear they would run out.
More generally, people struggle to grasp a concept as abstract, complicated and vast as climate change – how many geese are there in a gaggle? – especially when the negative effects of climate change seem far away. Our understanding of climate change and our willingness to do something about it is fragile enough to be influenced and swayed by irrelevant information.
Eric Johnson, director of the Centre for the Decision Sciences at Columbia University, has consistently found people are more likely to believe global warming is a real threat when asked on a warm day. This is the case even though changes to the climate are unrelated primarily to variations in the weather.
From an evolutionary perspective, it makes sense for people to focus on immediate threats and benefits when the priority is survival. However, when it comes to issues such as environmental degradation, people are not well-built for the challenge. They are ill-equipped to make immediate lifestyle compromises needed for long-term, collective benefit. [People] are ill-equipped to make immediate lifestyle compromises needed for long-term, collective benefit.
Solution
While this may sound like bad news, the more we understand our shortcomings as impulsive, short-sighted and often lazy thinkers, the better equipped we are to craft the kind of choice architecture needed to nudge people into behaviour change.
For example, behavioural economics had provided evidence that people are more likely to make far-sighted environmental choices when first prompted to think about how we want to be remembered. Additionally, one study showed that Americans are more inclined to behave in an environmentally friendly way when primed to think about the country as old and mature, and therefore destined for a long future.
Environmental campaigns that use stories of doom and gloom are common but rarely successful because people are generally good at rationalising away inconvenient information or information that makes them feel like their actions are inconsistent to the way they view themselves.
The way conservationists and policymakers communicate with people is important. Headlines and adverts that prime people to think about their actions positively or think about the world as a shared collective may have more success than messaging that relies on guilt, framing a person’s action as negative.
From an economic incentive perspective, the devil is in the detail. Remember, people are present bias. Most energy-efficient investments require significant upfront investments in the hope of seeing gradual gains. Think about how expensive it is to install solar panels on a home’s roof. Harnessing behavioural economics can help solve some of these obstacles. For example, SolarCity, a solar-energy company owned by Tesla, allowed people to install panels on their roof for no upfront payment in exchange for shared savings over time. The result was a dramatic increase in solar installations.
Embedding insight from behavioural economics into a policy that attempts to address climate change or any other sticky social issue where the intention-action gap is prominent is a powerful tool.
While our cognitive shortcomings have prevented society from making drastic behavioural changes, behavioural economics has identified ways in which those same shortcomings can be used for good. By harnessing the power of biases and mental shortcuts, policymakers can nudge people into significant and essential behavioural change.
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