What do economists mean by “nudge”?
Governments have traditionally tried to influence consumers’ decisions by providing them with incentives (like a rebate on an electric vehicle) or with information about the consequences of their actions (like the lurid descriptions of the hazards of smoking that appear on cigarette packaging). Both of these policy tools are based on the assumption that people are rational economic agents. The purpose of nudges is also to influence consumers’ decisions. But nudges are based on the assumption that people process information in a less than rational manner, lack willpower, and care about other people and about what other people think of them.
behavioral economist Jason Shogren
What, then, are green nudges?
There are basically three kinds. The first is to reduce the cognitive or physical effort required to make a green choice. For example, the food in a cafeteria could be displayed so that it is far easier for people to choose fruits and vegetables than it is for them to choose meat, which has much larger carbon footprint. The second type of nudge is to exploit people’s tendency to imitate their peers and accept social norms. An example of this would be an energy company providing customers with information about how their energy consumption compares with that of other customers in their area. Evidence suggests that this encourages heavy consumers to reduce their usage to be more like their neighbors. The third kind of green nudge is to make the green choice the default and require people to actively opt out of it. The price of an airline ticket could, for instance, automatically include a carbon offset for the distance of the flight unless customers click on a button to indicate that they do not want a carbon offset. Default nudges exploit the fact that people are somewhat less likely to opt out than they are to opt in.
One of your studies shows that a large percentage of people willfully ignore caloric information on food packaging – they engage in what you call “strategic self-ignorance” –as an excuse to overeat. Do you think strategic self-ignorance plays a role in people’s behavior that affects the environment and the earth’s climate?
Many types of human activity have negative externalities on the environment. In 2014 I was part of a team that studied whether people would avoid free information on these externalities and use this self-ignorance as an excuse to reduce environmentally friendly behavior. We surveyed people about a hypothetical long-distance flight and gave them the option to buy carbon offsets for the flight. One group was given information about the flight’s carbon emissions. Another group was given this information as well as information about the percentage of passengers that typically buy carbon offsets. More than half (53 percent) of the first group ignored the information about carbon emissions before deciding whether to buy an offset. But ignorance was far lower (29 percent) in the second group which was made aware of their fellow passengers’ tendency to buy carbon offsets. This suggested two things. First, that people do engage in strategic self-ignorance to avoid climate-friendly behavior. Second, that people may respond more to information about social norms regarding climate protection – in this case: the norm of offsetting one’s carbon emissions – than they do to information about the climate impact of their actions. In short, it suggests that in this case a green-nudge policy may be more effective than a consumer-information policy.
You also study how much people are willing to pay to reduce risk, like the risk of terrorism. What are people willing to pay to the reduce the risk of climate change?
Measuring the willingness to pay (WTP) to reduce climate risk is tricky because the potential damage is fairly far in the future. The challenge is to make these future risks tangible today to ordinary people who have many other things on their minds – like doing their job, paying the rent, and feeding their kids – and are inundated each day with information from mass and social media. I was involved in researching the WTP for two climate-friendly products: shade-grown coffee and recycled paper. We started by examining how the general mass and social media “noise” about climate change affects WTP. We then looked at the effect of providing people with verifiable scientific information about the climate benefits of shade-grown coffee and recycled paper. We found that people would cut through the media noise to process the verifiable information and this significantly increased by about 50 percent their willingness to pay more for shade-grown coffee and recycled paper. This suggests that the WTP for climate protection depends on the information available and the characteristics of the climate-friendly product.
Jason Shogren is Stroock Chair of Natural Resource Conservation and Management in the Department of Economics at the University of Wyoming. Shogren is a foreign member of the Royal Swedish Academy of Sciences and served on the Intergovernmental Panel on Climate Change and the Council of Economic Advisers in the White House. He was the first editor-in-chief of the Encyclopedia on Resource, Environmental, and Energy Economics (Elsevier 2013) and author of numerous books and articles.