Applying Behavioural Economics Theory for Environmental Protection

Introduction

Environmental degradation, especially in the form of climate change, is a global political issue. Despite agreements made by the majority of countries, the United Nations re-iterates that urgent action is needed to combat climate change and its impact. This essay addresses the issue of unproductive environmental policy and looks to the discipline of Behavioural Economics (BE) to understand how we can realise more effective strategy. Briefly there will be an introductory overview of BE theory as an improved tool over neo-classical rational choice theory when applied to this issue. The main argument advocates the examination of climate change as an urgent environmental issue and the appropriation of BE theory to improve environmental policy. Largely this is understood by investigating its usefulness in ways that protect the environment through reductions to man-made contributions to climate change.

The arguments culminate through 5 sub-topics, each examine a different perspective of BE theory. These sub-topics will draw on examples such as recycling, food and travel behaviour with respect to areas that BE can ultimately have influences on man-made climate change. Each topic calls on a different appropriation of BE theory and subsequently forms different outlooks on its use. In concluding, this paper will put forward pertinent ideas as to how BE theory might inform the direction of public policy changes. Furthermore, it shall present initial ideas as to how this might be achieved under caution of the recommendation of further research.

The Theory of Behavioural Economics

Behavioural Economics studies the way people make economic choices. As an area of research, it has received attention for its questioning of assumptions derived from neoclassical economics, particularly mainstream economics and its underlying rational choice theory. Rational choice theory asserts that individuals, as the name suggests, are rational in their choice making, make use of all freely available information in doing so and make these choices out of self-interest. (Organisation for Economic Co-operation and Development, 2012, p. 1)

Robert Cialdini (author of the Best-Selling title, ‘Influence’) attributes the academic fields of BE and Social Psychology to a Golden Age now being discovered in the Behavioural Sciences. (Samson & Cialdini , 2018, p. VII) Such a statement provides a neat overview of the framework BE works in, drawing on psychological and sociological insights in its research to challenge rational choice theory assumptions.

In drawing influence from these fields, one needs to carefully consider how BE theory should be applied to a cause, since these fields of influence are not necessarily comparable or consistent. For example, a psychology based economic approach draws on theories centred on individual people/organisations. They might incorporate a theory such as ‘Theory of Planed Behaviour’ where behaviour manifests internally from conscious thinking, or simply ‘intention’. Conversely the ‘Attitude-Behaviour Context’ model understands behaviour is realised both by the individual and their environment. (UK Department for Transport, 2011, pp. 45-46) Despite their differences both theories assume deliberation by the individual, though neither consider habits, which are prevalent in other theories.

Sociologically theoretical approaches differentiate themselves still with an emphasis on behaviour as determined by factors above and beyond the individuals themselves, pertinent examples of these factors might be transport infrastructure or waste management policies. These social practices can be broadly reduced to 3 elements; things, skills and imagery/meaning. Understanding these governing factors is paramount to these theories of behaviour. (UK Department for Transport, 2011, p. 8)

The hybrid influence of Social Psychology produces more nuances that contradict rational choice theory. Here we can understand behaviour from the perspective of beliefs and attitudes (Avineri, 2012, p. 513) physical, cultural, economic constraints (UK Department for Transport, 2011, p. 7) and social approval and status. (Brekke & Johansson-Stenman, 2008, p. 281)

Interdisciplinary approaches then, have provided BE with the ammunition to examine, or re-examine big issues where prevailing rational choice paradigms may have been obstructing the path to effective solutions. Concentrated research by (UK Department for Transport, 2011, p. 11) suggests we can maximise the value of behavioural approaches by focussing on specific behaviours. This is an important point to remember when tasked with applying BE theory to inform outcomes of policy, for example.

A recent report on sustainable development goals by the United Nations (UN) provides up to date information on challenges to the environment. It has set out many goals, to be achieved by 2030, from which we can learn of important issues where BE can lend itself. Of significance is Goal 13, climate change and its impact, distinguished by its urgent need of action. (United Nations, 2018, p. 10) Its changes are understood now to be mainly down to human activity, (Brekke & Johansson-Stenman, 2008, p. 281) and such an idea is crucial when referred to the intervention of Behavioural Science.

The majority of countries have now signed up to the Paris Agreement to provide information on their contributions to climate change. So far developments in climate change policy have yet to fully materialise owing to a ‘free-rider’ problem. (Bhargava & Loewenstein, 2015, p. 399) The problem stems from a country realising it can save costs trying to reduce emissions since it stands to profit from sincere actions taken by other countries. (Brekke & Johansson-Stenman, 2008, p. 288) A glance back to traditional economic theory might help us understand this stagnation. On this issue Avineri (2012, pp. 519-520) promotes further insights into behaviour towards climate change understood through cultural and geographical contexts, including a BE headed research agenda to better understand climate change mitigation. Furthermore Bhargava & Loewenstein (2015, pp. 399-400) in their work on public policy, attest BE as having a positive role in addressing climate change, enlargement of which could build public support for economic policies.

On environment specifically, BE lends value to public policy by providing mechanisms to influence environmental behaviour, since many so-called choices that weigh on outcomes to the environment arrive from several motivators. (Organisation for Economic Co-operation and Development, 2012, pp. 1-2) In fact, this is where BE theory has niche in that it can deploy tools to influence choice making by understanding motivations gleamed from the Behavioural Sciences. A prime example of BE theory’s influence on choice making comes in the form of a ‘nudge’, a straightforward, low-cost way to change behaviour using choice architecture. This has recently been elaborated on by the UN Environmental Programme who attribute BE to the design of robust, cost-effective policies that promote more sustainable consumption behaviours by improving existing choices. (United Nations Environment Programme, 2017) At a governmental level, nudges are understood to be broadly politically acceptable since they enhance public good for progressives whilst minimise government intervention and preserve personal liberties for conservatives. (Samson & Cialdini , 2018, p. IX)

Generally, use of a nudge is more effective when applied to ‘automatic’ behaviours in a controlled environment. (Avineri, 2012, p. 519) One example could be a coffee vending machine where certain water or sugar levels are presented as an automatic option in ordering. Alternatively, printing quality/ink usage automatically assumed without further specifying. We perhaps might understand these as ‘defaults’. Attending to default rules with a mind to environmental impact can have noticeably large effects, potentially these effects could overshadow attempts at moral suasion, economic incentive or education initiatives. (Sunstein & Reisch, 2014, p. 128)

The idea of a default presented through BE theory when applied to environmentally sensitive contexts is often referred to as a ‘green default’. Sunstein & Reisch (2014) examine green defaults extensively and generally recommend them since they can significantly reduce environmental harms associated with products and activities. Another recommendation of political note is the advantage of reaping the gains of green defaults, whilst still presenting people with free choice.

As mentioned previously BE theory makes allowances for non-rational choices and in an environmental context must deal with a complex set of motivations. According to (Avineri, 2012, p. 514), (Dawnay and Shah, 2005) lay out a number of key principles related to these many motivations, some of these will now be used as headers (i-v) to further examine BE theory’s value to a variety of environmental issues, especially with respect to climate change.

Other people’s behaviour matters

A strong theme in BE theory’s contention with rational choice theory is that there is more to individual choice making than simple self-interest. Within transport for example, climate change linked to travel choices makes for a social dilemma rather than an individual problem. (Avineri, 2012, p. 517) Social pressure is particularly effective at promoting green alternatives and influencing behaviour, as individuals in this domain prefer to fit in, even wanting to appear generous. (Garcia-Sierra, Van den Bergh, & Miralles-Guasch, 2015, p. 301) Moreover, it is understood that successful introductions of such ideas can become a contagion, since willingness to contribute to good social causes increases even by the mere perception of others’ contributions. (Brekke & Johansson-Stenman, 2008, p. 289) according to (Levitt and List, forthcoming).

When social norms support this kind of action and people are environmentally educated this can motivate pro-environmental behaviour which spreads with little persuasion. (Garcia-Sierra, Van den Bergh, & Miralles-Guasch, 2015, p. 298) In these instances Garcia-Sierra, Van den Bergh, & Miralles-Guasch argue a green alterative be presented as a recommended default option in a choice architecture system, (2015, p. 301) indeed this is one easy way to promote green alternatives, by simply taking advantage of the default bias. (2015, p. 295)

Habits are important

We can understand human behaviour as broadly habitual or non-habitual. Where non-habitual behaviour stems from consciousness (the reflective mind), habitual behaviour is more subconscious and routine (the automatic mind). (UK Department for Transport, 2011, p. 6) Habitual choice making is found to exist in the wider environmental domain and a cost-benefit analysis is often not carried out by individuals when making relevant choices. (Sunstein & Reisch, 2014, p. 152) Since behaviour here tends to be subconsciously led, employing defaults needs to be a carefully constructed process and choice habits play a significant role in this for a number of reasons.

Firstly, default rules may not ‘work’ simply because people have a strong enough preference to contend them. (Sunstein & Reisch, 2014, p. 144) Travellers for example rarely change their behaviour traits. (Garcia-Sierra, Van den Bergh, & Miralles-Guasch, 2015, p. 295) On the other hand, situations may arise where habits may make people more susceptible to the influence of nudges that may not be most beneficial to them. According to (Just & Gabrielyan, 2016, p. 28), (Wansink and Sobal, 2007) state individuals make hundreds of food related decisions daily. Such a cognitive task is overwhelming and here individuals must fall back on habits. As such, food poor individuals are vulnerable to behavioural nudges over other choice factors like price and nutrition. (Just & Gabrielyan, 2016, p. 30) This is symptomatic of a wider problem as according to (Just & Gabrielyan, 2016), Schaffner (2014) said present bias is a primary reason for those in poverty to make poor economic decisions.

People’s self-expectations influence how they behave

While nudges have obvious benefits, Avineri (2012, p. 519) reminds us they do not make objective changes to the choices available or impart much knowledge onto individuals. As an illustration, research into recycling behaviour has uncovered a ‘moral licencing’ effect, where conserving resources in one domain (which may have been prompted by BE theory) leads to wasting resources in another. (Trudel, 2016) The study found individuals less likely to recycle items that were distorted and more likely to recycle items linked to some element of their identity. Referencing (Reisch, 2003), Sunstein & Reisch (2014, p. 129) note that an individual deciding on green behaviour can be led by a desire to act in accordance with idealized self-conceptions.

Solutions to these recycling problems proposed by the author involve making minimal distortion, easy opening packaging and establishing strong links to identity. Disposal biases are dealt with at the individual level to increase the effectiveness of environmental ideals. (Trudel, 2016) The application of BE theory here acknowledges and tries to preserve existing behaviour, rather than a contrivance through nudges or choice architecture, since, as mentioned previously, these often do not educate to inform choices or encounter resistance from existing behaviour. With further research, approaches like this might be ready made solutions for environmental policy.

People are loss-averse and hang on to what they consider ‘theirs’

So far, we can understand BE theory has inputs on decision making through often habitual behaviour linked to social behaviour and self-expression. We can understand these factors as having weight behind them (inertia) when people are presented with new choices. BE theory often advocates default choices that favour maintaining the status quo over a large, beneficial change, or simply put ‘People dislike losses far more than they like corresponding gains’. (Sunstein & Reisch, 2014, p. 143) Known as loss framing, it features heavily in choice architecture, Avineri (2012, p. 517) even advocates this technique within informational measures to instigate change in travel behaviour.

Averting loss is closely tied with the decision inertia, since it is keen not to be too disruptive to the choice making process. As such, choice architects have more power in small changes than larger ones, an abrupt change inconsistent with preferences is likely to be rejected. (Sunstein & Reisch, 2014, p. 142) In the case of green defaults this can encourage selection if properly framed through loss aversion. (Sunstein & Reisch, 2014, p. 154) As an example, when concerned with switching energy supply, it might be possible to encourage choosing an environmentally-friendly option so long as the cost of switching (inertia) is understood to be low. (Garcia-Sierra, Van den Bergh, & Miralles-Guasch, 2015, p. 298) referencing Löfgren et al. (2009). To understand the significance of inertia and (on a meta level) loss-aversion another way consider Sunstein & Reisch (2014, p. 157) who note getting people to identify and make pro-environment choices may be costly when a green choice is not automatic.

People need to feel involved and effective to make a change

Previously we have understood BE theory in several forms applied to differing causes. Fundamental to the understanding and application of these is that there is a presumption of relevance for the choice maker. Some research suggests environmental issues will not provoke people to take serious action unless that issue is urgent and likely to have an imminent effect on them. (Mitomo & Otsuka, 2012, p. 406) In an age where information on environmental issues is more abundant and easier to reach there is perhaps expected to be an increase in awareness (Mitomo & Otsuka, 2012, p. 400) and perhaps concern. Why this does not manifest itself in change might be attributed to an ‘intention-action gap’, where professing to behaving sustainably and conserving resources does not manifest itself in actual behaviour change. (United Nations Environment Programme, 2017)

According to (Mitomo & Otsuka, 2012, p. 401), Kahneman and Thaler (2006) make a clear behavioural distinction between intention/action as two utilities; ‘decision utility’ created when making decisions and ‘experienced utility’ when taking action. Since there is no necessary coinciding of these utilities, green action may never come about even with an abundance of information.

The primary recommendation we need to consider from this research is that consumers need to be aware that environmental protection and their livelihood is related (Mitomo & Otsuka, 2012, p. 401) if there is to be any behavioural change towards protecting the environment. Even if the issue is taken on-board as important, this will be forgotten over time and thus people should be exposed to environmental information continually (Mitomo & Otsuka, 2012, p. 407) and be relevant, as way of reminder.

Conclusion

Many of the materials in this paper call for more research to be carried out with BE theory in their respective domain. While this should provide caution to the findings in this paper, it indicates that BE theory is being recognised as useful to inform policy towards environmental ideals and has the potential to have significant effects on it. Such enlargements may help build public support for economic policies, with nudging in particular seen as a politically acceptable approach. An exigent need for further insight into behaviour towards climate change, through cultural and geographical contexts is needed to inform inter-nation agreements.

BE theory’s gift is in its provision of the mechanisms to influence environmental behaviour which is maximised when focussed on specific behaviours. It lends itself to the provision of cost-effecient policies which promote more sustainable consumption realised most effectively by improving people’s existing choices. Major factors weighing in on these decisions are self-image, habitual behaviour, the risk of losing out and societal influence. By these, we have a mandate to shape strategies and capitalise on nudges and green defaults to begin to minimize man-made climate change. Most importantly perhaps there is a mandate to promote the impacts of climate change as a relevant and imminent problem in people’s lives.

References

1. Avineri, E. (2012). On the use and potential of behavioural economics from the perspective of transport and climate change. Journal of Transport Geography, 24, 513-521.
2. Bhargava, S., & Loewenstein, G. (2015). Behavioral Economics and Public Policy 102: Beyond Nudging. American Economic Review: Papers & Proceedings, 105(5), 396-401.
3. Brekke, K. A., & Johansson-Stenman, O. (2008). The behavioural economics of climate change. Oxford Review of Economic Policy, 24(4), 280-297.
4. Garcia-Sierra, M., Van den Bergh, J. C., & Miralles-Guasch, C. (2015). Behavioural economics, travel behaviour and environmental-transport policy. Transportation Research Part D, 41, 289-305.
5. Just, D. R., & Gabrielyan, G. (2016). Why behavioral economics matters to global food policy. Global Food Security, 11, 26-33.
6. Mitomo, H., & Otsuka, T. (2012). Rich information on environmental issues and the poor reflections on consumers’ green actions: A behavioral economic approach. Telematics and Informatics, 400-408.
7. Organisation for Economic Co-operation and Development. (2012, July). BEHAVIOURAL ECONOMICS AND ENVIRONMENTAL POLICY DESIGN. Retrieved from Organisation for Economic Co-operation and Development: https://www.oecd.org/env/consumption-innovation/Behavioural%20Economics%20and%20Environmental%20Policy%20Design.pdf
8. Samson, A., & Cialdini , R. B. (2018). The Behavioral Economics Guide 2018 (with an Introduction by Robert Cialdini). Retrieved from http://www.behavioraleconomics.com
9. Sunstein, C. R., & Reisch, L. A. (2014). AUTOMATICALLY GREEN: BEHAVIORAL ECONOMICS AND ENVIRONMENTAL PROTECTION. Harvard Environmental Law Review, 38(1), 128-158.
10. Trudel, R. (2016, October 7). The Behavioral Economics of Recycling. Retrieved from Harvard Business Review: https://hbr.org/2016/10/the-behavioral-economics-of-recycling
11. UK Department for Transport. (2011, November). Behavioural Insights Toolkit. Retrieved from UK Department for Transport: http://dft.gov.uk
12. United Nations. (2018). The Sustainable Development Goals Report 2018. New York: United Nations Publications.