Of behavioral economics, The New Yorker, climate change and soft paternalism

In What Was I Thinking, the New Yorker reviews two books on behavioral economics: “Predictably Irrational: The Hidden Forces That Shape Our Decisions” by Dan Ariely and “Nudge: Improving Decisions About Health, Wealth, and Happiness” by Richard H. Thaler and Cass R. Sunstein.

The New York Times also discusses Nudge and the idea of soft paternalism the book supports in A Nudge (or Is it a Shove?) To the Unwise: “For the case against nudges, see “Paternalism and Psychology,” (PDF) an essay by the Harvard economist Edward Glaeser. For the case in favor, see “Nudge” or this essay by Mr. Sunstein and Dr. Thaler.”

Another article in the New York Times, Are We Ready to Track Carbon Footprints?, discusses Nudge in relation to climate change. Here is an extract:

“The authors of “Nudge,” Cass Sunstein and Richard Thaler of the University of Chicago, agree with economists who’d like to reduce greenhouse gas emissions by imposing carbon taxes or a cap-and-trade system, but they think people need extra guidance. Getting the prices right will not create the right behavior if people do not associate their behavior with the relevant costs,” says Dr. Thaler, a professor of behavioral science and economics. “When I turn the thermostat down on my A-C, I only vaguely know how much that costs me. If the thermostat were programmed to tell you immediately how much you are spending, the effect would be much more powerful. It would be still more powerful, he and Mr. Sunstein suggest, if you knew how your energy consumption compared with the social norm.” read more

Becker and Posner on carbon offsets

Becker and Posner discuss carbon offsets on the Becker-Posner blog. Posner suggests that the most serious drawback of the carbon offset movement is that it “creates the false impression that global warming can be tamed by voluntary efforts just as cleaning up after dogs has been achieved by voluntary efforts, without need for legal compulsion. Global warming cannot be tamed by voluntary efforts, because the costs of significantly reducing carbon emissions in order to reduce the atmospheric concentration of carbon dioxide (or at least stop it from increasing) are enormous. If people believe that voluntary efforts will suffice, there will be no political pressure to incur the heavy costs that will be necessary to avert the risk of catastrophic climate change.”

In a comment Adam Stein co-founder of TerraPass, a carbon offsets selling company objects: “…offsets are not a substitute for cap-and-trade at all. Rather, the voluntary market is a potentially useful complement to a regulated market, acting in the short-term as a sort of policy bridge while the world waits for the U.S. federal government to take meaningful action; and in the long term as a supplementary source of carbon reductions…Regarding whether the existence of a voluntary market reduces political pressure for mandated reductions: this is a charge that is made frequently, and without real evidence. Awareness of the causes and potential solutions of climate change is still dismally low in the United States, and it is hard to see the disadvantage of programs which draw attention to the problem. In fact, the rise of the voluntary market has coincided with a remarkable surge in support for political solutions to climate change.”