Overcoming Decision Biases to Reduce Losses from Natural Catastrophes

Kunreuther, Howard; Meyer, Robert E.; Michel-Kerjan, Erwann

doi:10.2307/j.ctv550cbm.29

Cited by 63 publications

(66 citation statements)

References 27 publications

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“…People do not know the cost and energy savings associated with different technologies (3)(4)(5), and climate change is not viewed as an immediate threat requiring action now (6,7). In addition, people tend to have short time horizons and discount the future hyperbolically, so that the upfront costs of switching to a new technology, even when it results in long-term net savings, can deter investment in more expensive energy-efficient products (8).…”

mentioning

confidence: 99%

Political ideology affects energy-efficiency attitudes and choices

Gromet

Kunreuther

Larrick

2013

Proc. Natl. Acad. Sci. U.S.A.

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345

178

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This research demonstrates how promoting the environment can negatively affect adoption of energy efficiency in the United States because of the political polarization surrounding environmental issues. Study 1 demonstrated that more politically conservative individuals were less in favor of investment in energyefficient technology than were those who were more politically liberal. This finding was driven primarily by the lessened psychological value that more conservative individuals placed on reducing carbon emissions. Study 2 showed that this difference has consequences: In a real-choice context, more conservative individuals were less likely to purchase a more expensive energy-efficient light bulb when it was labeled with an environmental message than when it was unlabeled. These results highlight the importance of taking into account psychological value-based considerations in the individual adoption of energy-efficient technology in the United States and beyond.C limate change presents a major challenge to our current level of energy consumption. Much attention has been given to the development of energy-efficient technology as a way of addressing the problem of global warming and reducing the cost of energy use for consumers, but the demand for energy efficiency has not met expectations (1, 2). There are a number of potential roadblocks to the adoption of energy-efficient technology. People do not know the cost and energy savings associated with different technologies (3-5), and climate change is not viewed as an immediate threat requiring action now (6, 7). In addition, people tend to have short time horizons and discount the future hyperbolically, so that the upfront costs of switching to a new technology, even when it results in long-term net savings, can deter investment in more expensive energy-efficient products (8).Given these issues, one strategy for making energy-efficient technology attractive to consumers has been to focus on its environmental benefits (9). For example, a 2010 North American advertising campaign for the Toyota Prius (arguably the bestknown hybrid car) emphasized its environmental upside by telling viewers that "the world gets fewer smog-forming emissions" with a Prius, resulting in "harmony between man, nature, and machine." Similarly, the ENERGY STAR website (jointly run by the United States Department of Energy and the Environmental Protection Agency) promotes energy-efficient products as providing ways for people to "save energy and fight climate change." Because these messages explicitly emphasize environmental benefits, they likely resonate well with individuals who value protecting the environment. However, this emphasis on the environment might detract from the appeal of energy efficiency among individuals who do not want to be associated with environmental concern.This research investigated whether relying on environmental concern to promote energy-efficient technology may, in fact, present an additional roadblock to increasing demand by deterring otherwise interested co...

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mentioning

confidence: 99%

Political ideology affects energy-efficiency attitudes and choices

Gromet

Kunreuther

Larrick

2013

Proc. Natl. Acad. Sci. U.S.A.

Self Cite

345

178

View full text Add to dashboard Cite

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“…About this point: Slovic, Kunreuther and White (2000), Kunreuther et al, 2013. Note 5. Risks that are uncorrelated are risks of which the incidence of loss is spread out, either in terms of time or in terms of the individuals suffering the loss.…”

Section: Notesmentioning

confidence: 99%

Risk Classification in Natural Catastrophe Insurance: The Case of Italy

Porrini¹

2015

International Journal of Financial Research

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The role of risk classification as a remedy for asymmetric information market failure is widely recognized and adverse selection is commonly expected to cause market failure also in natural disaster insurance market. Actually, natural catastrophe insurance is a hot topic for the fact that national governments need to build a system to face the high cost of disaster assistance and damage compensation. But an efficient natural disaster insurance is based also on a coherent risk classification and this is the key point of the paper. We argue that issues of risk classification should be a major concern in the design of natural disaster insurance, especially in countries, such as Italy, with a so low penetration of this kind of insurance. The paper is structured as follows. Section 2 provides information on the Italian NatCat insurance. Section 3 describes risk classification looking at the demand side of the market. Section 4 analyses adverse selection in NatCat insurance market and the role of risk classification. Section 5 concludes.

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“…individuals having problems to perceive percentages correctly, and lack of accessibility of information, both leading to magnified estimates of risk. Similarly, Kunreuther et al (2010) assess behavioral failures under uncertainty. They argue that individuals use simplified decision rules and fall back onto psychological strategies that depart from economic rationality, e.g.…”

Section: Implications For Climate Policymentioning

confidence: 99%

“…Such failures to adequately perceive risks and process information may lead to inadequate levels of insurance and in turn to losses from natural disaster which could have been prevented. Inefficiencies that arise from decision making deviating from rationality assumptions in the realm of natural disasters can be ameliorated, among others, by the following policy measures: improving risk communication and implementing risk control mechanisms such as mandatory insurance (Viscusi 1995); setting prior steps to disasters to ensure efficient behavior of those expose to the risk, such as regulations in the form of zoning restrictions (Kunreuther and Pauly 2006); restrict voluntary choices and impose stricter regulations; and guide individuals to make more efficient protective decisions through readjusting insurance contracts and tax incentives (Kunreuther et al 2010). …”

Section: Implications For Climate Policymentioning

confidence: 99%

Environmental Policy Theory Given Bounded Rationality and Other-regarding Preferences

Gsottbauer

Bergh

2010

Environ Resource Econ

114

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Established environmental policy theory is based on the assumption of homo economicus. This means that people are seen as fully rational and acting in a self-regarding manner. In line with this, economics emphasizes efficient policy solutions and the associated advantages of price incentives. Behavioral economics offers alternative, more realistic views on individual behavior. In this paper we investigate opportunities to integrate bounded rationality and other-regarding preferences into environmental policy theory to arrive at recommendations for more effective policies. For this purpose, we will address decisions made under risk and uncertainty, intertemporal choice, decision heuristics, other-regarding preferences, heterogeneity, evolutionary selection of behaviors, and the role of happiness. Three aspects of environmental policy are considered in detail, namely sustainable consumption, environmental valuation and policy design. We pay special attention to the role of non-pecuniary, informative instruments and illustrate the implications for climate policy.

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Overcoming Decision Biases to Reduce Losses from Natural Catastrophes

Cited by 63 publications

References 27 publications

Political ideology affects energy-efficiency attitudes and choices

Political ideology affects energy-efficiency attitudes and choices

Risk Classification in Natural Catastrophe Insurance: The Case of Italy

Environmental Policy Theory Given Bounded Rationality and Other-regarding Preferences

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