Environmental Decisions under Risk and Ambiguity – ENDURA

Individuals’ decisions about the environment usually occur in the presence of some degree of uncertainty about the effect of those decisions. Uncertainty is especially pervasive in the context of climate change, where decision consequences depend on complex socio-economic dynamics and their interactions with the climate system. Often, the decision-maker faces ambiguity (unknown probabilities).

How does the individual cope with this ambiguity, and how is the decision shaped by the decision-maker’s attitude toward ambiguity? The project ENDURA proposes to study this question from the behavioral perspective, which acknowledges that humans find it difficult to make decisions under risk and, especially, ambiguity. Unlike the Bayesian decision-maker envisaged in the traditional theory, real decision-makers are imperfectly capable of processing probabilistic information. Psychological phenomena such as likelihood insensitivity and ambiguity aversion play a role, implying fundamental departures from the traditional theory. By taking the behavioral approach, which allows for such psychological phenomena, ENDURA aims at a deeper and more accurate explanation of the role played by uncertainty in climate decision-making.

Three specific objectives will be addressed: (1) deriving new theoretical insights about the role of uncertainty in climate action, based on behavioral theories of decision under uncertainty, in order to explain why and how people’s preferred climate action may diverge from the optimal action (implied under the Bayesian paradigm); (2) characterizing and exploring the empirical properties of people’s attitudes toward climate uncertainty, in order to explain and predict better people’s reactions to climate policy initiatives; and (3) investigating in a unified framework the interactions of other motivational determinants of climate action with uncertainty, in order to contribute insights to the question of how motivation can be best translated into action.

Behavioral theories of decision-making that can handle the phenomena such as ambiguity aversion and reference dependence have become available only relatively recently, and pragmatic measurement tools for their empirical applications have not been developed until even more recently. Many fields in economics have now begun applying them to decision-making under uncertainty, producing new insights in domains such as finance, health economics, and game theory. ENDURA proposes to extend these most recent theoretical and methodological advances in behavioral economics to the environmental domain, where applications have been lacking.

The Paris Climate Agreement’s goal of holding the warming of the planet below 2°C represents the limit that gives us a fighting chance at preventing a catastrophic interference with the climate system [IPCC 2014]. Scientists warn that achieving this goal will require decarbonization of the world economy at an unprecedented scale and pace. Emissions need to be drastically brought down within this decade and eliminated altogether before the end of the century. Crucially, climate action ultimately depends on human decision-makers embracing it in every aspect of their social, political, and economic lives. The broad objective of the project is to provide new insights on how we can best motivate climate action.