Combatting Climate Change with Human Behavior

Humans make so many decisions in a day that they contract “decision fatigue.” In fact, President Barack Obama famously saved his daily decision-making energy by limiting what he would eat and wear. In confronting a daily barrage of choices, often the easiest decision to make is no decision at all. Because of this tendency, regulators possess a powerful tool for realizing their goals: setting the default outcome.

In their paper, Cass R. Sunstein and Lucia A. Reisch explore the feasibility and impact of this tool in the context of combatting climate change. The Harvard Law School and Copenhagen Business School professors argue that an “architecture” of choices informs individuals’ decisions. One pillar of this architecture they call “defaults”—or, results that come about when a decisionmaker does nothing to change them. By making the default option on a range of products climate-friendly, Sunstein and Reisch envision a solution for situations in which individuals would resist traditional regulatory strategies like economic incentives or bans.

Regulators commonly employ these traditional strategies to combat climate change, such as limiting the operation of coal-fired plants or establishing a cap-and-trade program. Although Sunstein and Reisch acknowledge that these are significant tools, they also argue that regulators need to capitalize on tendencies in human behavior to combat climate change.

For example, consider a scenario where regulators try to predict whether consumers will choose a climate-friendly “green” energy source over a climate-unfriendly “grey” source. A traditional economist would consider the economic incentives in play, including the extent to which the green and grey sources differ in cost and how the consumers’ preferences interact with monetary costs. Implicit in this analysis is that consumers make an active choice between two options.

Sunstein and Reisch argue that missing from the traditional economic approach are behavioral variables, such as the tendency for individuals to settle for default outcomes. By following traditional economics, a regulator would try to influence a consumer’s decision by making the green source cheaper or the grey source costlier, such as by deploying subsidies or taxes.

But Sunstein and Reisch propose a different approach. They say that “choice architects,” the individuals who design the default and available options,  should select a default outcome for the majority of consumers who do not make an active choice and allow particularly motivated consumers to opt out affirmatively.

Given the predictability of human behavior and the great number of climate-unfriendly defaults already in place, green defaults hold potential for reducing greenhouse emissions. They also allow individuals to maintain the ability to opt out of the default, which respects the fact that some consumers may have strong preferences against the architects’ preferred default outcome.

To support their argument for relying on defaults to address climate change, Sunstein and Reisch offer the cases of two German communities. In Germany—and the United States, for that matter—consumers are usually supplied with a default energy source from which they may opt out. Often, the default energy source is relatively “grey,” and even though many Germans say they would use green energy given the choice, very few actually do. But two communities were outliers—over 90 percent of their residents used green energy. In these two communities, the towns made green energy the default.

Controlled experiments have produced similar results, according to Sunstein and Reisch. In one study, some households were asked whether they wanted to opt into green energy, while others were automatically enrolled into green energy and asked if they wanted to opt out. The green energy plan was slightly more expensive in both scenarios. Households in the first scenario opted in at a rate of only 7.2 percent, while 69.1 percent of households in the second scenario remained with their green default.

Although the first-scenario households that opted in were associated with supporting an environmentally conscious political party, no such association was found to be significant for the second-scenario households that remained with the green default. In other words, those second-scenario households may not have made an active decision to go green, but rather simply stayed with the status quo.

The results appear promising, but why do climate-friendly defaults work? Sunstein and Reisch suggest three reasons.

First, consumers may perceive that the choice architects were implicitly suggesting or endorsing the option. If the consumer respects the expertise or sensibility of the architects, then the consumer views the default as a sensible policy.

Second, inertia and procrastination may prevent consumers from choosing actively. To opt out, consumers must weigh environmental, economic, and other trade-offs, some of which may be complex and morally charged. The more effort required to decide, the more likely consumers are to defer to the default.

Third, studies have shown that humans experience loss aversion—that is, they dislike losses more than they like gains. A default acts as a benchmark to which other options are compared. If a grey option is the default, then a consumer may disproportionately focus on the upfront cost of switching to a greener option, even if that option might be cheaper in the long run.

The reasons why defaults work also illustrate conditions when they might not work. For example, although less-informed consumers may defer to the choice architects’ selection, the climate-friendly default is unlikely to affect those with private information or strong preferences to the contrary. Similarly, Sunstein and Reisch argue that if consumers distrust or dislike the choice architects—for example, if the architects seem self-serving, elitist, or preachy—consumers may opt out at higher rates.

Of course, some choice architects may actually be self-serving, uninformed, or the like, and in those instances, informed affirmative choosing would be preferable to a default rule set by those architects. And even well-meaning architects may face empirical challenges that prevent fair evaluations of the socially optimal choice and suggest no clear default.

Finally, consumers may have preferences that are so diverse and divergent that a one-size-fits-all default would not be appropriate.

Sunstein and Reisch concede that setting defaults will not always be the best solution. But if reliable choice architects are confident in a socially optimal outcome, they should undertake to set that outcome as the default.

Choice architects should consider relying on informed active choosing, rather than green defaults, when their conclusions are more tentative, Sunstein and Reisch suggest. But when regulators have sufficient confidence in the optimal outcome, climate-friendly defaults represent an underused—and potentially more politically and economically feasible—regulatory strategy.