Uncertainty in boundedly rational household adaptation to environmental shocks

Abstract

Despite the growing calls to integrate realistic human behavior in sustainability science models, the representative rational agent prevails. This is especially problematic for climate change adaptation that relies on actions at various scales: from governments to individuals. Empirical evidence on individual adaptation to climate-induced hazards reveals diverse behavioral and social factors affecting economic considerations. Yet, implications of replacing the rational optimizer by realistic human behavior in nature–society systems models are poorly understood. Using an innovative evolutionary economic agent-based model we explore different framings regarding household adaptation behavior to floods, leveraging on behavioral data from a household survey in Miami, USA. We find that a representative rational agent significantly overestimates household adaptation diffusion and underestimates damages compared to boundedly rational behavior revealed from our survey. This “adaptation deficit” exhibited by a population of empirically informed agents is explained primarily by diverse “soft” adaptation constraints—awareness, social influences—rather than heterogeneity in financial constraints. Besides initial inequality disproportionally impacting low/medium adaptive capacity households post-flood, our findings suggest that even under a nearly complete adaptation diffusion, adaptation benefits are uneven, with late or less-efficient actions locking households to a path of higher damages, further exacerbating inequalities. Our exploratory modeling reveals that behavioral assumptions shape the uncertainty of physical factors, like exposure and objective effectiveness of flood-proofing measures, traditionally considered crucial in risk assessments. This unique combination of methods facilitates the assessment of cumulative and distributional effects of boundedly rational behavior essential for designing tailored climate adaptation policies, and for equitable sustainability transitions in general.

Economic implications of autonomous adaptation of firms and households in a resource-rich coastal city

“…Additionally, the model results demonstrate that the subsidy is helpful in sustaining insurance uptake when climate change is fast, and individuals prioritize spare resources for repair costs after a flood, resulting in compounding vulnerability to further consecutive shocks. Our analysis also highlights that while the subsidy is essential in situations of rapid climate change and in the aftermath of floods, it may not be adequate in overcoming other non-financial soft limits that can generate an 'adaptation deficit' , leading to adaptation levels remaining below optimal levels 4,23 . These findings support existing research on the role of subsidies in overcoming financial constraints and emphasize the need for targeted interventions that can address other soft limits of adaptation 37 .…”

“…The CRAB is an evolutionary economic ABM designed to delve into the intricate interplay between agglomeration forces -those clustering people and assets along coastlines and delta rivers -and climate-induced shocks 22,23 . It features a regional economy exposed to flooding that encompasses four classes of a variable number of agents: households, capital-good firms, consumption-good firms, and consumption-service firms.…”

“…3b, c, and d) displaying a willingness to adapt that is more likely constrained by financial resources than the other segment of the population. Conversely, the impact on other ACs is relatively minor, suggesting the presence of 'soft' adaptation limits related to individual perceptions, implementation capacity, and social norms 23,37 . Consequently, the uptake of disaster risk reduction measures facilitated by subsidies highly benefits households with low adaptive capacity, which experience a reduction of approximately 50% in direct damages following the first flood (see bright blue in Fig.…”

Patterns in Reported Adaptation Constraints: Insights from Peer-Reviewed Literature on Flood and Sea-Level Rise

“…Despite CCA being critical for climate-resilient development, massive adaptation gaps are reported at the country and continental levels [4,5], and significant adaptation deficits -i.e. lower adaptation than would be optimal -at the individual and community scales [6,7].…”

Equity and modeling in sustainability science: Examples and opportunities throughout the process

“…Empirical research has identified several dynamics and causal pathways of interest such as: how differential access to information and resources can widen gaps following a shock, exacerbating socioeconomic inequalities ( 96 ); how complex cycles of intervention-adaptation in managed systems can lead to unpredictable outcomes with distributional implications ( 97 , 98 ); and how both autonomous (i.e., reactive) and planned adaptation can result in maladaptation, in which actions taken by an actor/institution shift risk to another space, time, or social group ( 51 ). Approaches to better represent these dynamics within models, discussed in SI Appendix , section S5 , range from developing fully coupled socio-technical or socio-ecological models, where different modeling approaches (e.g., agent-based models to represent differential behavioral responses and engineering models to represent infrastructure systems) are linked ( 99 , 100 ), to the targeted use of empirical data to parameterize heterogenous impacts based on differential vulnerability or adaptation drivers ( 101 , 102 ). Across these cases, new datasets are facilitating more sophisticated treatment of adaptation in models; however, care must be taken given structural gaps in these data sets for vulnerable households, and the potential for data to be used in ways that reinforce disparities (e.g., discriminatory screening for services) ( 90 , 96 – 98 ).…”