Markets and Environmentalism - A Call for Better Incentives

Markets and Environmentalism – A Call for Better Incentives

Earlier I wrote that climate change and environmental concerns seemed to be too large of a problem to be left to nudges. Toward the end of Nudge, Cass Sunstein and Richard Thaler acknowledge the reality that nudges alone cannot tackle climate change, but they still encourage actions that follow the spirit of nudges, or at least learn from the psychology that makes nudges effective. Incentives play a huge role in behavior, and  need to be considered when governments approach businesses in an effort to redress the harms of climate change. Markets and environmentalism cannot be separated if we are to have a sustainable climate. Better incentives need to be implemented within markets to adjust for environmental needs.

 

The authors acknowledge market failures related to climate change by writing, “when the air or the water is too dirty, the standard analysis says that it is because polluters impose externalities (that is, harms) on those who breath or drink. Even libertarians tend to agree that when externalities are present, markets alone do not achieve the best outcome.” Pollutants are common externalities, as are traffic congestion and decimated wildlife populations. The cost of negative externalities is squarely on the shoulders of the individuals in the market, either the consumer or the producer. Governments are necessary to deal with these externalities and prevent them from harming innocent bystanders.

 

Additionally, regarding market failures and climate change, the authors continue, “When people are not in a position to make voluntary agreements, most libertarians tend to agree that government might have to intervene.” Most libertarians agree that labor contracts should be voluntary, with an employer reserving the right to hire anyone, and laborers reserving the right to walk away if their wages or working conditions are unfair. In reality, many people would starve if they walked away from a job, or at least face serious challenges, so voluntary agreements are not always possible. Within the climate change arena, many people cannot simply chose to travel to work by more fuel efficient methods, many people cannot afford the switch to solar power, and many other potential solutions are similarly unavailable, meaning people and businesses are often stuck, involuntarily, with polluting norms for travel, work, and heating or cooling their homes and offices. Markets alone don’t provide the impetus to change the status quo to reflect the reality of climate change.

 

The next post will dive deeper into the incentives and solutions to these problems, but it is clear that markets alone will not direct society toward a climate change solution. The danger of climate change is a long-term danger, where the costs are not experienced in the immediate moment but are instead experienced years and decades later. However, the costs of making adjustments to limit climate change are experienced up front. Upgrading infrastructure, investing in electric and solar technology, and living in more economically friendly ways present immediate costs that nudges cannot overcome. Nevertheless, we can consider the ways in which nudges work and build on those principles to begin to make changes. We can start to better align incentives to limit externalities, and we can preserve choice structures as we move forward with investments and innovation to help us meet the needs of the climate crisis. Government will play a big role and can learns a lot from the psychology of nudges to help address the challenges we face.
The Mere Measurement Effect - Joe Abittan

The Mere Measurement Effect

I listen to a lot of politics and policy podcasts, and one thing I learned over the last few years is that asking people to vote and encouraging them to vote isn’t very effective. What is effective, is asking people how they plan to vote. If you ask someone where their polling place is, how they plan to get there, when they plan to complete their mail in ballot, and if they will sit down with a spouse to vote, they actually become more likely to vote.

 

This seems like a strange phenomenon, but it appears that getting people to talk through the voting process helps cement their plans in their mind. The process seems to be related to the mere-measurement effect, which Richard Thaler and Cass Sunstein write about in their book Nudge. Writing about individuals who participate in surveys and their behavior after being surveyed they write,

 

“Those who engage in surveys want to catalogue behavior, not influence it. But social scientists have discovered an odd fact: when they measure people’s intentions, they affect people’s conduct. The mere-measurement effect refers to the finding that when people are asked about what they intend to do, they become more likely to act in accordance with their answers.”

 

The mere-measurement effect, just like the questions about how and where a person actually plans to cast their ballot, is a nudge. The brain is forced to think about what a person is doing, and that establishes actual plans, behaviors, and goals within the mind. It is very subtle, but it shifts the thought patterns enough to actually influence behavior. Once we voice our intention to another person, we are more likely to actually follow through compared to when we keep our inner plans secret. This can be useful for a supermarket trying to sell a certain product, a politician trying to encourage supporters to vote, or for charitable organizations looking to get more donations. The mere-measurement effect is small, but can be useful for nudging people in certain directions.
Daniel Kahneman on Regret

Daniel Kahneman on Regret

Regret is an interesting emotion and worth deep consideration. It is a System 2 emotion, that is, an emotion we feel when we pause, reflect on our life or actions, and consider the decisions we have or have not made in the past. System 1, the active, fast, and general default mode of our brain doesn’t feel regret. It lives in the moment and takes action based on our current inputs. It can receive feedback from System 2’s regret and make adjustments with new decisions and actions, but it is too busy with the present moment and environment to be the one building the emotion of regret.

 

Regret also stems from our ability to imagine different realities. Daniel Kahneman describes it as an emotion associated with loss and mistakes that allows us to self-correct and perceive different opportunities and realities that we might want to live within. It can modify how we act and behave, before we have even been faced with a decision. Kahenman writes, “decision makers know that they are prone to regret, and the anticipation of that painful emotion plays a part in many decisions.”

 

If I pause to think about regret, I typically think about a person on their deathbed, regretful for all the things they never did in their life. A fear of being this person has pushed me to try to do more, be more involved, and have varied and interesting experiences. The trite quote is that people on their deathbed are more regretful for the things they didn’t do than the things in life they did do. In this view, people recognize regret, and it turns into a fear of missing out that spurs people to action before it is too late, before they regret not taking action.

 

However, this idea may not represent the most powerful feelings of regret that we may experience. Kahneman writes, “People expect to have stronger emotional reactions (including regret) to an outcome that is produced by action than to the same outcome when it is produced by inaction.” As an example, Kahneman presents two fictional characters. Both have investments with companies A and B. One individual considers making a greater investment in company A, but does not and loses out on $1,200 of potential gains. The other removes some of her investment from company A, and she ends up with $1,200 less than what she could have received if she had done nothing. The consensus among people who read Kahneman’s examples indicate that the person who actively pulled money out of company A feels more regret than the person who never added extra investment funds to the company. Doing nothing and missing a potential gain is less regretful than taking an action that creates a perceived loss.

 

Loss aversion is powerful, and we are more likely to take actions to avoid losses to help us avoid feelings of regret rather than take chances at potential gains. The gains we don’t receive won’t cause as much regret as losses we do receive. Regret is not just the fear of missing out or the fear of having done too little that I described earlier. It is a powerful emotion that kicks in when we reflect on our life and see that our actions directly lead to losses and mistakes that we made. We may begin to change our behaviors and decisions to avoid similar losses in the future, and avoid the regret that those losses will bring, but that can drive us into making irrational choices in the present moment, with the hope of not losing out in the future.

Midpoints

I’m a big fan of college basketball, and I really enjoyed the section of Dan Pink’s book When that discussed midpoints. Pink shared interesting research of college basketball teams which showed that teams that were down by one point at halftime were more likely to win the game than the team that was up by one point. When teams were down by more than one at halftime they were less likely to win the game, but a one point deficit seemed to be a good thing. The reason, according to Pink’s read of the research, that the team down one at halftime came back to win was due to the “uh-oh effect” which spurred a sense of urgency for the losing team. The team that was up one point, and teams that faced larger halftime deficits were more likely to face an “oh-no effect” and were more likely to retreat.

 

Thinking about college basketball teams at halftime can translate into other aspects of our lives. If we hit 40 or 50 years-old we might have our own “uh-oh” or “oh-no” moment. When we are two quarters into the big project at work that we said we would complete before the end of the year, when we are halfway through a school semester, and every day at lunch we face a midpoint. We can look at what we have accomplished up to that point and decide whether we are going to push forward and double our effort, or if things feel hopeless and we might as well fold.

 

Regarding midpoints, Pink writes, “with midpoints, as with alarm clocks, the most motivating wake-up call is one that comes when you’re running slightly behind.” In college basketball, the team that is down one at the break realizes that they still have a chance, and that they need to pull things together to get the win. In life, we recognize that we have wasted several years at a job we dislike, that we haven’t hit the milestones on our work-project that we need to, or that we didn’t perform as well as we hoped on that midterm exam. These moments can spur us to action if we see that we are not too far off pace to reach our goals. However, if we are really missing the mark, we should recognize that midpoints can turn our motivation the other way.

 

If we see that we don’t have a chance of living in a mansion after all, if we won’t hit the project deadline even if we add 10 additional staff, and that we have no chance of getting an A in the course after bombing a midterm, then we are likely to give-up. In work and school we don’t have control over when we set the midpoint, and that wake-up call can be painful. Walking away might really be our best bet.

 

In life, however, we can control what we consider the midpoint, and we can change our motivation accordingly. Where it might make sense in business or school to walk away and focus a better effort elsewhere, in life we must move forward. Our best option becomes changing our midpoint perception and finding a way where we can look at our life and see ourselves as just slightly behind where we want to be. That way we take advantage of the motivation form the college basketball study and spur an “uh-oh effect” rather than face an “oh-no effect” and give-up.

 

What is important to recognize with midpoints is that they can be an opportunity for honest reflection of our progress in life, business, and other endeavors. Where we find ourselves at the midpoint can shape how we perform for the second half. Being slightly off-pace can spur us to action, but finding ourselves way behind can trigger a sense of defeatism. When possible, we can manage our halftimes to be more favorable for us, but when we can’t pick and choose our midpoint, then we face tough decisions in how we proceed.

Advice from Isocrates

In Ego is the Enemy, author Ryan Holiday includes a quote from a teacher in Athens named Isocrates around 374 B.C. who wrote a letter to a young man who had recently lost his father. Holiday includes several lines and pieces of advice from Isocrates, and one that stood out to me when reading Holiday’s book is the following, “Be slow in deliberation, but be prompt to carry out your resolves.”

 

Yesterday evening I attended a community group with my wife, and the ice breaker to start off was, “what is something you don’t often approach with an eternal perspective that you should.” I chose a light answer of traffic and other drivers who annoy us while driving, but others said things like career choices, money decisions, and other important decisions that can weigh us down and make our lives stressful. The quote from Isocrates reminds me of the ice breaker from last night in the sense that we should be more thoughtful yet deliberate in our actions. Thinking with an eternal perspective means to think about the meaning and value of a choice or decision today relative to the entire arc of humanity. It requires introspection, being honest about your choices, and trying to think not just about yourself but about those around you who will also be impacted by your decision. This is exactly what Isocrates was encouraging for the young man in his letter.

 

The advice from Isocrates contained another element beyond careful and honest consideration of our choices. To be prompt in carrying out our resolves requires that we be firm in the decisions we make and deliberate in our actions to realize our decisions. I have seen in myself a thousand instances where I have made a decision to follow a course of action, only to be slow in starting on the path I decided would travel. Inevitably, the longer I delay action and the slower I am to take the steps that I decided I would take, the more likely it is that my decision is forgotten and that I do nothing. Whether it is cleaning my garage, starting a new club to read academic journal articles, or double checking our finances to set up a surprise date night with my wife, I am often slow to do what I told myself I wanted to do, and frequently I don’t carry out the great plans in my head. The advice from Isocrates is very practical for our daily lives. Slow down our judgement and reactionary tendencies, but once a decision has been made, put full and deliberate efforts forward to bring those decisions to life.

The Absurdity of Thinking We Know What is Happening in Another’s Mind

We make claims all the time about what other people are thinking and feeling and about the motivations, beliefs, and desires of others. We can maybe be right about some large things and the study of psychology has given us insight into a lot of patterns of the brain, but to think that we could ever really understand what is happening in the mind of another person is beyond nonsense.

 

This fallacy starts with our misunderstandings of our own brain and our own consciousness. We like to think that there is a single actor in our brain, observing the universe, directing our actions, and making sense of the world in an objective and rational manner. What everything seems to indicate, however, is that this experience of our consciousness does not align with reality. People often fail to act in a way that is in their rational best interest. We are driven by the stories that we tell ourselves, giving rise to prejudices and allowing us to be swayed by our self-interests. When meditating we see just how hard it is to focus on a single thought, even if we try our best to make our conscious mind think about our breath and not the candy jar on our co-workers desk. In all of these situations, our thoughts seem to be a bit beyond our control, a bit random, and heavily influenced by factors that we perceive or imagine even if they don’t exist.

 

When we look inward at our own mind we begin to see just how jumbled our own thoughts and consciousness can be. When we truly work to improve our mind, we can build our self-awareness, look at the world more objectively, and start to recognize patterns of our own thoughts and behaviors, but this is hard work and reveals a confusing set of contradictions within ourselves. Indeed, as Thich Nhat Hanh wrote in his book The Miracle of Mindfulness, “If you want to know your own mind, there is only one way: to observe and recognize everything about it. This must be done at all times, during your day-to-day life no less than during the hour of meditation.”

 

To know our mind is to recognize the times when our mind is not what we think or imagine it to be. And if we cannot even know our own mind without constant study and evaluation of what we are thinking and believing, then how can we ever claim to understand another person’s mind, even for a second? We can hide things from ourselves, fail to recognize the reality of the world around us and of ourselves, and we can develop false beliefs in our thinking. This is true for each one of us, and for everyone else around us. When we think of other people, of their desires, habits, actions, fears, and their general mindset in any given situation, we must remember that they are as complicated as we are, and that we cannot possibly understand what is happening in their mind.

 

When I think of this, when I read Hanh’s quote about self-awareness and how difficult it is to know ourselves, I remember to judge people less harshly, to slow my thinking down, and to first interrogate my own mind before assuming something about the mental state of another person. This is not easy to do, and it undoubtedly leads to a place where I think to myself, “well the world is hard and this person is influenced by many things and feels many fears and pressures, so their actions and behaviors can to some extent be deemed understandable.” This works well when I am confronted by a grumpy person in line at the bank or a jerk driving next to me on the freeway, but it is less that satisfying when thinking about people who commit serious crime (an area I don’t have solid thoughts on right now), or people who seem to antagonistically oppose beliefs that I find important and noble. What I can say is that remembering how challenging it is to know myself helps me be more empathetic with others and view what they say or do in a less attacking and critical light. In personal relationships and in the office this is a great skill to cultivate, because it stops me from assuming I know what is happening in another person’s mind, and reminds me that they may not even have their own thoughts fully understood.

Cory Booker on Cynicism

Being Cynical is easy. Being Cynical is also dangerous and damaging. Toward the end of his book United Senator Cory Booker reflects on the cynical state of politics and society today, and what it means for individuals and for the nation to be as cynical as we are today. Booker writes, “cynicism about America’s current state of affairs is ultimately a form of surrender; a toxic state of mind that perpetuates the notion that we don’t have the power to make a difference, that things will never change.” When we don’t take action to be involved in our city, when our knowledge of politics (or anything else) is only cursory, and when we fall into a habit of not looking beyond our own perspective, we begin to think everyone is like us, and we accept the easy cynical story. Booker, in United, challenges inaction, challenges cynicism, and challenges the idea that only bad people are involved in how government and society operates.

 

I study Public Administration at the University of Nevada, Reno and it has forced me to focus on the realities of government, which is that there are a limited number of resources available for society, and somehow we must decide who gets what, when, and how. Any time you think about the way the world operates and begin to consider the world, the word ‘should’ undoubtedly pops up, indicating that you are making a judgement statement about your beliefs of the world. I don’t use belief in the religious sense of the word, your opinion and worldview could be shaped and reformed by objective empirical data to a large degree, but ‘should’ indicates political preference, ideology, and what you think would work best for an individual or collection of individuals in a situation. The important thing about the word “should” is that there is almost never 100% clear evidence that the suggestion following it is the only answer. When dealing with limited resources we must make political decisions, meaning that we must write down our “should” and our perspectives influence how we decide what is the most important.

 

Cynicism fails to recognize what is happening when the word “should” is introduced into discussion. It assumes there is an easy answer, and assumes that resources are not constrained and that we do not have to make difficult decisions that undoubtably give some people more resources or access to resources than others. When we allow ourselves to be cynical we are looking at a shell of any given situation and seeing what we want to see. We look for the negative and criticize what is in front of us. Being cynical is not about finding the errors and problems in a given situation and looking for a solution. Instead it is about propping ourselves up and placing ourselves on the right side of a moral divide, in much the same way that we use outrage to feel better about ourselves.

 

Booker is critical of cynicism, arguing that it takes our power away from us when we need to take more action on our own. Rather than recognize that we can band together to improve the world, cynicism looks at the status quo and assumes that we cannot make a difference. It is the result of what Tyler Cowen calls the “Complacent Class” that does not want to put in the effort and focus needed to make a change in the world. Cynicism allows “should” statements to exist in isolation within the brain, never challenged by new facts, and never actually introduced to the world. When we allow ourselves to be cynical we accept complacency when the world needs action and initiative. Cynicism is self-perpetuating, and fighting it off is a struggle, but if we want to grow individually, and if we want to see the world improve, we must understand that our world view will always be incomplete, that other people will have different motivations and will make mistakes, and that it is only by our actions that we can change the world for the better, even if our actions will be infinitesimally small in the course of history.

Humble Teachers

Senator Corey Booker gives us an insight into the people he sees as mentors and role models in a brief paragraph in his book United. Throughout his book, Booker talks about the people who have made an impact in his life, and almost all of them were citizens trying to make a difference in their local community. These individuals were impactful not because they wanted power, control, or notoriety, but because they truly cared about their community and the people around them. Regarding the people Booker learned the most from, he writes, “you reap what you sow; for every action there is an equal and opposite reaction; cause and effect. Humble people teach us this and more. They are great masters, the best of whom I have found are not on television, not at a university, and not elected to any office. They do not preach sermons, give lectures, or dispense orders. They do. Without fanfare, they do the best they can, with what they have, where they are.”

 

Booker’s message is one I think needs to be shared more broadly with people and youth in society. It is often easy to look at problems, think that someone should do something, and then sit back and make excuses for why we are not the people to try to make a difference. We don’t have much time. The problem is not really our responsibility. We don’t know who to talk to about the problem. And we don’t know what our first step would ever be.

 

Instead of focusing on the problems in tackling the problem, if we shared a community wide message of each of us doing the best that we can where we are, we could begin to make a difference. The perspective we usually take is that the issue is too big and our actions are too small to matter. This perspective can be shifted to say that we can start, we can try to do a little bit with what we know, and we can take action based on good intentions. Our efforts may not be perfect, but at least we can begin to move the ball and build momentum. Focusing locally can help us find new directions for improvement and can help us start to tackle the challenges that impact not just us, but everyone. We don’t need to do something with the intent of being noticed and appreciated. We can take action because we know it will make the world a better place.

 

If we look around and try to find people who are already doing this we can learn and find new ways that we can get involved and make a difference. These individuals can lead and mentor through their actions, and their focus and thought process can be absorbed to help us become better people and make positive impacts on our communities. Booker learned this by living with people in low income high rise communities and by working with local people trying to make a difference for the people where they lived. Great knowledge can be gained from professors and lecturers, but a certain wisdom can only be achieved by being active and surrounding oneself with people who truly care about making the world better.

Hope

Senator Cory Booker has an interesting thought about optimism and the future. He believes that you can’t simply look forward to the positives of the future and that you can’t ignore the negatives of the present that may persist into the future. What you must do, according to Booker, is be honest about the negativity that you wish to change and set out to make the world better through actions and deliberate choice. Intentional actions to drive toward a better world is what Booker calls hope, and it is about more than just believing things will be better one day. For Booker, hope is believing that one can struggle against the negativity, learn, grow, and make the world a better place. He writes, “Hope is the active conviction that despair will never have the last word.”

 

The power of Booker’s hopefulness lies in its practical manifestations in the real world. On an interview of the Ezra Klein Show, and again in an interview with Tim Ferris, Booker spoke about the word “optimism” and explained that optimism falls short of Booker’s ideas of hope. He sees optimism as empty beliefs that things will get better, leaving out the important decisions and efforts of the individual to make thing better. If one simply assumes the world will move in the right direction without looking at the specific areas that need to change, then one will never have a plan or roadmap to reach that better future. A positive outlook of the future needs to have more than just blind faith that one day things be great, it needs action items that one can relentlessly pursue to improve the world. This is the hope that Booker describes as a participant driven optimism.

 

Hope for Booker is the belief that one has the power to make the world a better place through awareness and action. If you fail to see what negativity exists, if you fail to think about how you could change what you dislike and understand to be unjust, if you fail to acknowledge the pain and suffering of now, then you won’t be able to live in a way that fights against such forces. Booker continues, “It does not ignore pain, agony, or injustice. It is not a saccharine optimism that refuses to see, face, or grapple with the wretchedness of reality. You can’t have hope without despair, because hope is a response.” Hope is the ability to look at the world, visualize a way to improve it, and take steps toward a better future. Hope does not run from the negative of the world today, but looks at the negative more closely to understand where it came from and how it can be overcome.

New Avenues for Movement

One of the ideas in Ryan Holiday’s book The Obstacle is the Way is developing a focus on other people and things beyond ones-self and one’s immediate wants and desires. Holiday follows stoic principles to build a more purposeful and meaningful life, and one of his strategies is to think more deeply about others. He encourages present mindedness in our thoughts, but in a way that is reflective and understanding, beyond a presence that is concerned about what we have, what we want, and what others have that we do not. By applying this type of thinking to the challenges we face, Holiday give us a new vision of obstacles, the difficulties we face, and how our challenges relate to other people. He writes, “Sometimes when we are personally stuck with some intractable or impossible problem, one of the best ways to create opportunities or new avenues for movement is to think: If I can’t solve this for myself, how can I at least make this better for other people?”

 

This quote shows the importance of thinking beyond ourselves when we are faced with obstacles. The easy thing to do when we are stuck and unable to see potential solutions is to give up and complain about how unfair our situation is. What Holiday argues is a productive response to being stuck, is to stop thinking about ourselves and how limited our possibilities are. By shifting our focus of the problem away from our own “stuckness” and instead thinking of what we could do to help those who are in similar situations, we give ourselves new pathways forward. They may not be the pathways we originally envisioned, and they may not lead to the same destination, but they do move forward.

 

The crucial idea in Holiday’s quote is that thinking of others allows us more growth through deeper reflection. This mindset provides an opportunity for us to develop deeper connections with other human beings through the struggles we share. We likely will not find ourselves in situations that are truly unique to only us. Others have certainly been in our shoes at some point, and many more will experience situations similar to ours in the future. Thinking about what would have been helpful for ourselves, and creating ways to share our experiences, attempted solutions, and successes allows us do something meaningful at a point where none of our actions seem important.

 

This thought process gives us a new direction and new goals. we likely will have to shift our aim and pursue new actions to try to implement ideas that benefit others, but in doing so, we abandon our stuckness, and open doors for others. We experience new energy through acts that do good for others, and we create new opportunities for ourselves that we could not have predicted had we not been creative during our struggles. Holiday’s simple idea gives us an oblique approach to forward growth and a more meaningful life for ourselves and those around us.