Rational appeal to the irrational on climate

OPPOSITION Leader Tony Abbott is on to something in portraying the Government’s climate-change policy as a great big tax and in ruling out an emissions trading scheme or any carbon impost. He is cleverly tapping into behavioural economics theory, whether consciously or not.

It is odd that our rationalist, intellectual Prime Minister seems to have ignored a swag of research on behavioural theory in devising and selling his response to climate change, whereas the new populist, anti-intellectual Opposition Leader seems to be a master of it.

First, a brief explanation of behavioural economics theory and how it might apply to climate-change policy.

The theory rejects the traditional economists’ view that people behave rationally and in their best interests, including their best long-term interests.

The theorists have done experiments which show people are more concerned about losses than gains; inclined to stick to the status quo; dislike uncertainty; sharply discount the future compared to the present; go for the simple rather than the complex; follow others; stick with what they know; and they procrastinate.

So a complicated, costly, new carbon-trading scheme to save us from some ill-defined future loss invites rejection even though it most likely is a rational response to climate change.

A good exposition of the behavioural theory by CSIRO researchers Andrew Reeson and Simon Dunstall was published last month by the Henry Tax Review. It related human behaviour to the tax system. Given that many responses to climate change involve tax, it applies well in this area.

The experiments reveal humans making demonstrably silly decisions when presented with a range of economic choices.

The CSIRO paper argues, in relation to the Australian tax system, that policy makers should take account of this irrational conduct so that its ill-effects can be neutralised.

Abbott, on the other hand, is playing on to the irrational tendencies of voters. His policy to date appeals to the irrationality rather than neutralises it. Presumably, the detailed policy due next year will do the same.

The Abbott policy, such as spending immediately on some carbon-reducing schemes like solar panels, has a certain amount of appeal over a complicated scheme whose direct relationship with carbon reduction is not immediately apparent to the broad mass of voters.

The test for the Government will be whether it lets him get away with the clever political exploitation of the irrationality of many voters. It is a difficult task.

The Government has, however, several advantages in behavioural economic theory, if it is played right. Humans tend to greatly over-weigh small probabilities and over-weigh certainties and under-weigh medium probabilities. They are more concerned about being eaten by a shark than injured on the roads, for example. They are also highly motivated by fear.

The more the Government can show that, unchecked, climate change is a certainty and a costly certainty at that, the more people will respond. Tragically, droughts and fires have helped sway opinion towards acknowledgement of climate change and that something should be done about it.

The third advantage for the Government’s position is the human tendency to be fair, even if it is irrational and does not promote their self-interest. The experiments show people will settle for a smaller payment provided everyone else gets the same. It is called “inequity aversion”. Apparently even monkeys have it.

It means the argument that Australia should not do anything because on our own we amount to only 1.5 per cent of world emission will not wash. We should pull our weight, people think, even if we might be better off not doing anything and bludging off everyone else’s efforts.

In all though, the Government cannot expect people to accept that it has come up with the best solution. It is going to take a lot of explaining and arguing, especially has it has only three of the elements of behavioural economics on its side – the side of a comprehensive, universal response – whereas the Opposition has seven or eight elements on its side – the side of being seen to do something, even if it is piecemeal, provided there is no pain.

Behavioural economics aside, the Government has another difficulty – the tendency for opinion on political questions to move towards 50-50 for and against.

You often see this with referendum questions, but also other policies. Before the political parties take a firm decision on an issue, public opinion might be 70-30 or 80-20, or more often 40-20 with 40 with no opinion. Once the political parties take a stand, though, voters tend to align their opinion with their preferred party.

With Abbott taking a more attacking stand, this tendency might get stronger and fewer people will support immediate, comprehensive and significant action of climate change.

It is odd that despite politicians being held in such low esteem, their stand on an issue will often convert the “don’t knows” and cause supporters who had hitherto supported a position different from their party’s to change their mind.

It should mean, but usually doesn’t, that politicians will use their power with responsibility rather than for immediate political advantage. Malcolm Turnbull used the former; Abbott appears to use the latter.

Unfortunately, as the behavioural economics research shows, the bulk of humans have little capacity to resist the 50-50 rule in the long term. They follow others – particularly their political party.

Sometimes, of course, opinion can force a party to change, as indeed it did in changing the position of Howard Government on climate change late in its term. However, usually that only happens when it seems the opinion is not going to be changed easily before an election.

Alas, every day the view of climate-change inquirer Ross Garnaut that addressing climate change will be a “diabolical policy problem” seems increasingly accurate.
CRISPIN HULL
This article first appeared in The Canberra Times on 12 December 2009