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«Working Paper 11-046 Copyright © 2010 by Lisa L. Shu and Max H. Bazerman Working papers are in draft form. This working paper is distributed for ...»

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Cognitive Barriers to

Environmental Action:

Problems and Solutions

Lisa L. Shu

Max H. Bazerman

Working Paper

11-046

Copyright © 2010 by Lisa L. Shu and Max H. Bazerman

Working papers are in draft form. This working paper is distributed for purposes of comment and

discussion only. It may not be reproduced without permission of the copyright holder. Copies of working

papers are available from the author.

Oxford Handbook of Business and the Environment Chapter 13 Cognitive Barriers to Environmental Action: Problems and Solutions Lisa L. Shu Max H. Bazerman Harvard University 1    Abstract We explore interventions at the level of the individual and focus on recognized cognitive barriers from the behavioral decision-making literature. In particular, we highlight three cognitive barriers that impede sound individual decision making that have particular relevance to behaviors impacting the environment. First, despite claiming that they want to the leave the world in good condition for future generations, people intuitively discount the future to a greater degree than can be rationally defended. Second, positive illusions lead us to conclude that energy problems do not exist or are not severe enough to merit action. Third, we interpret events in a self-serving manner, a tendency that causes us to expect others to do more than we do to solve energy problems.

We then propose ways in which these biases could actually be used to our advantage in steering ourselves toward better judgment. Finally, we outline the key questions on the research frontier from the behavioral decision-making perspective, and debunk the myth that behavioral and neoclassical economic perspectives need be in conflict.

2    The preceding chapters have offered many excellent business and non-market strategies to promote environmental sustainability initiatives. Together, these chapters offer novel interventions at the corporate, policy, and organizational levels to help society move toward better environmental solutions. In this chapter, we turn inward to explore interventions at the micro level—the level of the individual—from both the citizen and policymaker perspectives.

We focus on recognized cognitive barriers from the behavioral decision-making literature. In particular, we highlight three cognitive barriers that impede sound individual decision making that have particular relevance to behaviors impacting the environment. We then discuss possible ways to overcome these cognitive barriers, first from the perspective of the individual citizen and then from the perspective of the policymaker.

In 2002, the Nobel Committee broke with tradition by awarding its Prize in Economics to Daniel Kahneman. Kahneman, together with the late Amos Tversky, carved out a field devoted to systematic and predictable mistakes people make in everyday decision making (Tversky and Kahneman 2004). At its core, the field of behavioral decision making presumes that all people rely on simplifying strategies, or cognitive heuristics, when facing judgments and choices. These heuristics evolved to equip us with faster decision-making abilities that can withstand the numerous complexities of everyday life. But speed comes at a cost: As Tversky and Kahneman identified, heuristics also lead people to systematic and predictable errors. Decision-making errors, or biases, are defined as pervasive departures from rational thought in predictable directions. The long list of specific biases that have been identified has hugely impacted the existing models of decision making in the fields of economics, financial markets, consumer behavior, negotiation, medicine, and organizational behavior (see Bazerman and Moore 2008).

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opposite of the neoclassical economics perspective. In actuality, the two approaches have much more in common than the academic debate suggests. Research on decision-making biases does not discredit all models of economic rationality; rather, the behavioral perspective aims to uncover predictable departures from economic rationality (in specific domains and decision contexts) to better improve existing models of behavior.

The field of behavioral decision-making has documented a long list of biases (Bazerman and Moore, 2008), many of which are relevant to faulty environmental decisions (Hoffman and Bazerman, 2007). In order to provide a deeper understanding of how behavioral decisionmaking research can be used, we focus on three biases that we believe are particularly relevant to behaviors that impact the environment. First, despite claiming that they want to the leave the world in good condition for future generations, people intuitively discount the future to a greater degree than can be rationally defended. Second, positive illusions lead us to conclude that energy problems do not exist or are not severe enough to merit action. Third, we interpret events in a self-serving manner, a tendency that causes us to expect others to do more than we do to solve energy problems. We then propose ways in which these biases could actually be used to our advantage in steering ourselves toward better judgment. At the end of this chapter, we outline the key questions on the research frontier from the behavioral decision-making perspective, and debunk the myth that behavioral and neoclassical economic perspectives need be in conflict.





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with this question often say they would prefer to receive $10,000 today, ignoring the opportunity to earn a 20 percent return on their investment. Similarly, homeowners often fail to insulate their homes appropriately or to purchase energy-efficient appliances and fluorescent lighting, even when the long-term rate of return would be huge. Research demonstrates that people too often use an extremely high discounting rate regarding the future—that is, they tend to focus on or overweight short-term considerations (Loewenstein and Thaler 1989).

Organizations are also guilty of discounting the future. One top university undertook a significant renovation of its infrastructure without using the most cost-efficient products from a long-term perspective (Bazerman, Baron, and Shonk 2001). Facing capital constraints on construction, the university implicitly placed a very high discount rate on construction-related decisions, emphasizing the minimization of current costs over the long-term costs of running the building. As a result, the university passed on returns that its financial office would have enjoyed receiving on its investments. By contrast, as part of its Green Campus Initiative, Harvard University set up a fund to finance worthwhile projects for different colleges within the university that, due to short-term budget pressures, might otherwise have been overlooked. The Green Campus Initiative helps university departments avoid making poor long-term decisions that could result from the tendency to overly discount the future.

Over-discounting the future can contribute to a broad array of environmental problems, ranging from the overharvesting of the oceans and forests to the failure to invest in new technologies to address climate change. Hoffman and Bazerman (2007) document the disastrous impact of extremely high discount rates on the global fishing crisis. 11 of the 17 world’s largest fishing basins have been depleted. High-tech equipment and government subsidies have allowed

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enough boats, hooks, and nets to catch far more fish than the entire resource. Too many boats are chasing too few fish, and international skirmishes over poaching have emerged.

Ecological economist Herman Daly has observed that many of our environmental decisions are made as if the earth “were a business in liquidation” (Gore 1992). We are most likely to discount the future when the future is uncertain, distant, and when intergenerational distribution of resources is involved (Wade-Benzoni 1999). Specifically, when people espouse the view that the earth’s resources should be preserved, they tend to think about their descendants. But when consumption opportunities arise today that would inflict environmental costs on future generations, they begin to view “descendants” as vague groups of people living in a distant time. In their book, Priceless: On Knowing the Price of Everything and the Value of Nothing, Frank Ackerman and Lisa Heinzerling connect discounting of the future to phenomena such as species extinction, the melting of polar ice caps, uranium leaks, and failure to deal with hazardous waste. From a societal perspective, overweighting present concerns can be viewed as both foolish and immoral, as it robs future generations of opportunities and resources (Ackerman and Heinzerling 2004; Stern 2007).

Positive Illusions Many countries’ borders are likely to be substantially altered by the effects of climate change in the form of more destructive hurricanes and the submersion of oceanfront land. Yet most governments continue to ignore opportunities to play a constructive role in addressing climate change and fail to take steps to control or reduce their countries’ reliance on fossil fuels.

Contributing to this problem has been political action by the groups most threatened by aggressive responses to climate change, such as heavy manufacturing businesses, oil and gas

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contribute to the problem by failing to modify their energy usage, at least until the price of gas skyrockets. Why do we make such egregious long-term mistakes?

Our positive illusions about the future are a likely culprit. In general, we tend to see ourselves, our environment, and the future in a more positive light than is objectively the case (Taylor and Brown 1988). Such positive illusions have benefits, as they can enhance selfesteem, increase commitment to action, and encourage persistence at difficult tasks and strength in the face of adversity (Taylor 1989). But, research also shows that positive illusions also reduce the quality of decision-making and prevent us from acting in time to address significant problems (Bazerman and Watkins 2004; Bazerman and Moore 2008).

We all hold a wide variety of positive illusions, yet two are particularly relevant to inattention to energy and climate change: unrealistic optimism and the illusion of control (Bazerman, Baron, and Shonk 2001). Unrealistic optimism can be described as the tendency to believe that one’s own future will be better and brighter than that of others, and also better and brighter than an objective analysis would imply (Taylor 1989). Undergraduates and graduate students alike tend to expect that they are far more likely than reality suggests to graduate with honors, get a good, high-paying, and enjoyable job, and be featured in the newspaper. People also assume that they are less likely than their peers are to develop a drinking problem, get fired or divorced, or suffer from physical or mental ailments. In alignment with these tendencies, we believe and act as if the repercussions of climate change will be far less significant than the scientific community predicts.

We also tend to think that we can control uncontrollable events (Crocker 1982).

Experienced dice players, for example, believe that “soft” throws help them roll lower numbers;

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illusory beliefs result from a false sense of control over the most uncontrollable of events. In the realm of climate change, this type of positive illusion translates to the common expectation that scientists will invent new technologies to solve the problem. Unfortunately, despite claims such as those made by Steven D. Levitt and Stephen J. Dubner in their bestselling book Freakonomics (Harper 2009), little concrete evidence exists that a new technology will solve the problem in time. In fact, such claims make the task of climatologist all the harder. As a result, unrealistic illusion that a new technology will emerge serves as an ongoing excuse for the failure to act today.

Egocentrism Whose is to blame for climate change? As we saw in Copenhagen, parties are likely to have different assessments of their proportionate blame and responsibility for the problem.



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