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Utilizing theory and empirical insights from psychology and behavioral economics, this paper examines individuals' cognitive and motivational barriers to adopting climate change adaptation and mitigation measures that increase consumer welfare. We explore various strategies that take into account the simplified decision-making processes used by individuals and resulting biases. We make these points by working through two examples: (1) investments in energy efficiency products and new technology and (2) adaptation measures to reduce property damage from future floods and hurricanes. In both cases there is a reluctance to undertake these measures due to high and certain upfront costs, delayed and probabilistic benefits and behavioral biases related to this asymmetry. The use of choice architecture through framing and the use of default options coupled with short-term incentives and long-term contracts can encourage greater investment in these measures.

Zonder onderwerpscode: economie

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A green growth agenda requires policy makers, from local to supranational levels, to examine and influence behavior that impacts economic, social, and environmental outcomes on multiple scales. Behavioral and social change, in addition or conjunction with technological change, is thus a crucial component of any green growth strategy. A better understanding of how and why people consume, preserve, or exploit resources or otherwise make choices that collectively impact the environment has important and far-reaching consequences for the predictive accuracy of more sophisticated models, both of future states of the world and of the likely impact of different growth strategies and potential risk management strategies. The prevailing characterization of human decision making in policy circles is a rational economic one. Reliance on the assumptions of rational choice excludes from consideration a wide range of factors that affect how people make decisions and therefore need to be considered in predictions of human reactions to environmental conditions or proposed policy initiatives. In addition, a more complete and more fully descriptive understanding of decision processes provide powerful tools for policy design that complement legal or economic instruments or may lead to more effective implementation of such policy instruments.

Behavioral economics --- Climate Change Economics --- Climate Change Mitigation and Green House Gases --- Decision processes --- Economic Theory & Research --- Energy --- Environment --- Environmental Economics & Policies --- Knowledge for Development --- Macroeconomics and Economic Growth --- Rational choice

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Highlighting past research, recent discoveries, and open questions, The Future of Risk Management provides scholars, businesses, civil servants, and the concerned public tools for making more informed decisions and developing long-term strategies for reducing future losses from potentially catastrophic events.

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