Monday, 1 September 2014

Economic Perspectives on Climate Change: Part 2 Altruism and Conditional Cooperation

Blog Post by Judd Ormsby

In my last post I told a simple story of climate change as a free-rider problem. The view I sketched there looked pretty grim: rational self-interested people won’t achieve cooperation.  The idea is not new: many people interpret Thomas Hobbes’ ‘state of nature’ where the life of man is “solitary, poor, nasty, brutish, and short” as the result of some sort of cooperation problem that the government is required to solve.  Here I want to talk about the evidence that even in stylized settings, where purely self-interested rational people would not cooperate, we actually do observe cooperation (albeit imperfect).

Before I explain the results of the experimental literature it is helpful to give a basic outline of the laboratory games used to derive them. One example of a game used to experimentally test for cooperation is a public goods game. In a public goods game a number of people are given an endowment of money and can choose to contribute any portion of this endowment to a pot. The amount of money in the pot is then doubled and distributed equally among all the players – regardless of how much (if anything) each player contributed to the pot. This game is played once. Here the pot could be seen as analogous to greenhouse gas mitigation. Contributing to the pot is costly but efficient (it can make us all better off) yet, because all the benefits are equally distributed, it is not in any individual’s narrowly defined self-interest to contribute.

To make this clear consider that you are playing this game in a group of five. Suppose we give everybody an endowment of $10 and each person is allowed to put any portion of this money into the pot. The money in the pot is then doubled and distributed equally among the five people. Regardless of what others do you only get 40 cents back on every dollar you put in, so a self-interested person would put no money in the pot. If everybody reasons the same way nobody puts any money in – as predicted by the zero contribution thesis – and everyone is left with the $10 they started with. But if everybody had instead acted cooperatively and donated the full $10, 10×5=50 dollars would be contributed to the pot, which is then doubled to 100 dollars and given back to all participants as $20 each. So if everyone acted cooperatively they would all be twice as well off.

Economics Nobel Prize winner Elinor Ostrom lists several general findings that have become well established in the experimental literature – see Ostrom Collective Action and the Evolution of Social Norms (2000, p140). I summarize the ones I think are the most relevant to climate change action.

  1. The empirical results show that on average people contribute 40-60% of their endowment.

This first finding contradicts the zero contribution thesis. People do in fact cooperate when narrow self-interest would suggest otherwise. However people do not cooperate fully and completely escape the ‘state of nature’.

  1. Those who believe others will cooperate are more likely to cooperate themselves.

This is because most of us are conditional cooperators. That is, we are willing to cooperate provided that we see others do so as well. Hence we should try to make mitigating emissions more visible.  As more people are seen to mitigate we are likely to get a positive feedback loop – more people will believe that others are mitigating and hence more people will mitigate (this could also work in the opposite direction, where the absence of mitigation means that fewer and fewer people cooperate). This could make the job of NGOs, national governments and the United Nations easier – as they foster some mitigation this could create a virtuous circle.

  1. Context matters: Cooperation rates depend on ‘framing’. 

Things that shouldn’t affect a completely self-interested and perfectly rational person (in the narrow economic sense) do affect real people’s behaviour. For example, people are less cooperative when they interact via a computer instead of face-to-face, partly because when they interact face-to-face they can shame each other into cooperating and partly because when we can identify who will benefit from our actions we are more likely to be generous.

Generosity can be influenced! Emissions could be reduced by making generous mitigation effort more visible and changing social norms so that people start to feel social pressure to reduce their emissions and put pressure on others to do the same. It is never obvious what the best way to change social norms is, but in a later post I will discuss the example of default choices.

Cooperation can even occur among narrowly self-interested rational people if the game is to be played indefinitely. In repeated games, people consider not only their immediate payoffs but also the effect of their behaviour on others’ future cooperation which affects their future payoffs. The existence of generosity and reciprocity make this cooperation easier to create and sustain.

In my next post I will discuss some insights from behavioural economics that show there might be cases where people make truly ‘bad decisions’. These are decisions people shouldn’t be making regardless of their effects on climate change. When we identify examples of high-emissions choices that are ‘bad decisions’ we are discovering win-win opportunities: we can increase mitigation in a way that isn’t costly to anyone.

This post is adapted from a paper Judd wrote for the low-emission future dialogue group, which is part of Motu’s Low-Emission Future programme.

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