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Behaviorally Green: Why, Which and When Defaults Can Help

  • Chapter
New Perspectives for Environmental Policies Through Behavioral Economics

Abstract

Careful attention to ‘choice architecture’ promises to open up new possibilities for environmental protection—possibilities that may be more effective than the standard tools of economic incentives, mandates, and bans. How, for example, do consumers choose between environmentally friendly products or services and alternatives that are potentially damaging to the environment but less expensive? The answer may well depend on the default rule. Indeed, green default rules may be a more effective tool for altering outcomes than large economic incentives. The underlying reasons include the powers of suggestion, inertia, and loss aversion. If well-chosen, green defaults are likely to have large effects in reducing the economic and environmental harms associated with various products and activities. Such defaults may or may not be more expensive to consumers. In deciding whether to establish green defaults, choice architects should consider consumer welfare and a wide range of other costs and benefits. Sometimes that assessment will argue strongly in favor of green defaults, particularly when both economic and environmental considerations point in their direction. But when choice architects lack relevant information, when interest group maneuvering is a potential problem, and when externalities are not likely to be significant, active choosing, perhaps accompanied by various influences (including provision of relevant information), will usually be preferable to a green default.

Published 2014 in the Harvard Environmental Law Review, 38(1), 127-1. We thank the Harvard Environmental Law Review for permission to publish a revised version of “Automatically green: Behavioral economics and environmental protection”, Harvard Environmental Law Review, 38(1), 128-158.

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Notes

  1. 1.

    For a valuable collection, see Shafir (2013).

  2. 2.

    See generally Thaler and Sunstein (2008).

  3. 3.

    See Allcott (2011) and Allcott and Rogers (2012).

  4. 4.

    See Allcott, supra note 3, at p. 1093.

  5. 5.

    See Cialdini et al. (2006). Note in particular the finding that drawing public attention to the existence or pervasiveness of undesirable behavior can actually increase such behavior: “It is worthy of note that our most ineffective persuasive message simulated the sort of negatively worded, descriptive norm message that . . . is regularly sent by public health and community service officials regarding a wide variety of social problems. Our results indicate that appeals of this type should be avoided by communicators in their persuasive undertakings. Unfortunately, this is not always the case. . . . For instance, after we reported the outcomes of the present study [showing the ineffectiveness of park signs containing negatively worded, descriptive normative messages] to park administrators, they decided not to change the relevant aspects of their signage. . . . We were disappointed—but, truth be told, not surprised—that park officials weighted visitors’ subjective responses more than our empirical evidence in their signage decision.” Id.

  6. 6.

    See id. at p. 12.

  7. 7.

    It is possible, of course, that an emphasis on social norms will trigger adverse reactions and resistance, perhaps especially from younger people. See the discussion of “deviant subcultures” in Kagan and Skolnick (1993).

  8. 8.

    On individual motivations to consume, see Reisch (2003).

  9. 9.

    See generally Griskevicius et al. (2010). For a more general discussion of this phenomenon, see Akerlof and Kranton (2010).

  10. 10.

    On the diversity of social meanings and their changes over time, see generally Lessig (1995). On energy in particular, with striking findings that are implicitly about social meaning, see Costa and Kahn (2010) (showing disparate reactions, across ideological lines, to information about social norms with respect to energy usage).

  11. 11.

    See Griskevicius et al., supra note 9, at pp. 393–394; Sexton and Sexton (2011).

  12. 12.

    See Sexton & Sexton, supra note 11, at p. 22.

  13. 13.

    Starr (2009).

  14. 14.

    See generally Kahneman (2011) (comparing two modes of thinking: System 1, which is responsible for automatic, intuitive judgments, and System 2, which is responsible for deliberate, non-intuitive judgments).

  15. 15.

    See Pachur et al. (2012).

  16. 16.

    See Hartmann and Apaolaza Ibáñez (2006) (noting that some empirical research “has found that people accept mark-ups on the price of green energy brands because they want to feel better about themselves, and are not primarily interested in the objective environmental impact of their decision”).

  17. 17.

    See Schuldt (2013).

  18. 18.

    Eric Johnson and Daniel Goldstein, Decisions By Default, in The Behavioral Foundations of Policy, supra note 1, at p. 417; Brown and Krishna (2004).

  19. 19.

    On default rules in general, see Chetty et al. (2012) (concluding that automatic contributions are more effective at increasing retirement savings rates than price subsidies); Halpern et al. (2013) (concluding that patients may not hold firm individualized preferences regarding end-of-life care). For many examples in the context of green defaults, see Part II below.

  20. 20.

    See generally Ullmann-Margalit (1978) (describing invisible-hand mechanisms, which give rise to phenomena that “look[ ] to be the product of someone’s intentional design,” but are not).

  21. 21.

    For the available palette of default policies, see generally Johnson et al. (2012).

  22. 22.

    To illustrate, total generation of paper and paperboard in municipal solid waste has grown from 30 million tons in 1960 to 70 million tons in 2011 and paper comprised roughly 28 % of the total municipal solid waste in 2011 EPA (2011).

  23. 23.

    See Print Management Information, Rutgers.edu, http://perma.law.harvard.edu/03BNSKSY4oZ

  24. 24.

    See Egebark and Ekström (2013).

  25. 25.

    Id.

  26. 26.

    Id.

  27. 27.

    Id. at p. 20.

  28. 28.

    The literature is voluminous. For diverse views, see Boyle (2012), Everett et al. (2012), Meiners et al. (2011), and Zehner (2012).

  29. 29.

    See Schuldt, supra note at p. 17.

  30. 30.

    For one example, see Frequently Asked Questions, Mass Energy Consumers Alliance, http://perma.law.harvard.edu/0wkGmTsXtxJ

  31. 31.

    See generally Pichert and Katsikopoulos (2008), on which we draw throughout this section. A more recent experimental study in Germany is reported in Kaenzig et al. (2013).

  32. 32.

    See Pichert & Katsikopoulos, supra note 31, at p. 64 (citation omitted).

  33. 33.

    Id. at p. 66.

  34. 34.

    Id.

  35. 35.

    Id.

  36. 36.

    Id.

  37. 37.

    Id.

  38. 38.

    Id.

  39. 39.

    Id.

  40. 40.

    Id.

  41. 41.

    See Pichert & Katsikopoulos, supra note 31, at p. 64.

  42. 42.

    See Loewenstein et al. (2014) (“Such studies are likely to overstate behavioral reactions to the disclosure, in part because it is easier to say that one will take some kind of protective action than actually to take it, and in part because the disclosures in such studies tend to be much more salient than they typically are in real world settings. The problem is compounded when subjects are given multiple decisions to make differing only (or mainly) on disclosures, because the variation of disclosures against an otherwise constant background will artificially increase their salience.”).

  43. 43.

    Pichert & Katsikoupoulos, supra note 31, at pp. 67–68.

  44. 44.

    Id. at pp. 67–69.

  45. 45.

    Id.

  46. 46.

    Id.

  47. 47.

    Id. at pp. 68–69.

  48. 48.

    Id.

  49. 49.

    Pichert & Katsikoupoulos, supra note 31, at p. 70.

  50. 50.

    Id.

  51. 51.

    Id.

  52. 52.

    See Kahneman et al. (1991).

  53. 53.

    See Fryer et al. (2012).

  54. 54.

    See Kaenzig et al., supra note 31, at pp. 318–319.

  55. 55.

    Note, however, that 2 years after the Fukushima disaster and the initiation of the German “Energiewende” (meaning energy transition, designed to shift to environmentally superior energy sources), most energy providers offer attractive “green energy” mixes and have greatly changed their supply policy. See Reisch (2013).

  56. 56.

    See infra at nn. 82–91 and accompanying text (discussing inertia).

  57. 57.

    There is a great deal of work on the Energy Paradox, which occurs when consumers, focused narrowly on the short term, do not purchase energy-efficient products that are in their economic interest. For a valuable overview showing the complexity of the underlying issues and the amount that remains to be learned, see Allcott and Greenstone (2012). For an important discussion of externalities and internalities, see Allcott et al. (2012).

  58. 58.

    See generally Dinner et al. (2011).

  59. 59.

    See id. at p. 332 (citation omitted).

  60. 60.

    Id. at p. 341.

  61. 61.

    Id.

  62. 62.

    Id. at p. 335.

  63. 63.

    Id.

  64. 64.

    Id. at p. 334.

  65. 65.

    See, e.g., Fox-Penner (2012).

  66. 66.

    A valuable discussion can be found in Gilbert et al. (2013).

  67. 67.

    See id. at pp. 4–7.

  68. 68.

    Directive 2009/72/EC (2009).

  69. 69.

    Data privacy concerns may arise if, for example, consumers do not want others to know about their energy use.

  70. 70.

    See Renner et al. (2011).

  71. 71.

    See Dinner et al., supra note 58, at p. 335.

  72. 72.

    Ölander and Thøgersen (2013).

  73. 73.

    Id. at p. 151.

  74. 74.

    See, e.g., Gale et al. (2009), Dinner et al., supra note 58, at p. 335, and Carroll et al. (2009).

  75. 75.

    See, e.g., Johnson and Goldstein, supra note 18, at p. 417 and Brown et al. (2011).

  76. 76.

    Madrian and Shea (2001); see also McKenzie et al. (2006).

  77. 77.

    People might also have experienced for themselves the positive outcomes of controversial regulatory decisions that they might not have endorsed ex ante, if given the choice. An example would be the smoking bans for bars and restaurants imposed in the U.S. and in Europe in the 2000s. Although enacted in the face of industry opposition, polls suggest these bans enjoy widespread support. Citing this and similar examples, Elke Weber concludes that “policy makers may sometimes be well advised to shape and lead public opinion rather than follow it.” Elke U. Weber, Doing the Right Thing Willingly: Using the Insights of Behavioral Decision Research for Better Environmental Decisions, in The Behavioral Foundations of Public Policy, supra note 1, at p. 380, 393.

  78. 78.

    See Löfgren et al. (2012).

  79. 79.

    See Tannenbaum and Ditto (2012).

  80. 80.

    See Costa & Kahn, supra note 10, at p. 17.

  81. 81.

    See Johnson and Goldstein, supra note 18, at pp. 420–421.

  82. 82.

    On choice avoidance, see Sethi-Iyengar et al. (2005).

  83. 83.

    For regular product tests and price comparisons of energy providers offers conducted by a German consumer organization, see Stiftung Warentest, http://www.test.de (last visited Dec. 4, 2013). See, e.g., Warentest (2012).

  84. 84.

    Infas Energiemontor (2012).

  85. 85.

    See Pichert & Katsikopoulos, supra note 31, at p. 64.

  86. 86.

    For a broad treatment of the effects of cognitive demands, with many implications for environmental choices, see generally Mullainathan and Shafir (2013).

  87. 87.

    Fleming et al. (2010).

  88. 88.

    See Brown et al., supra note 76, at pp. 129–130.

  89. 89.

    Id.

  90. 90.

    Ryan Bubb and Richard Pildes urge that default rules are effectively mandates, because they tend to be “sticky.” Bubb and Pildes (2014). The evidence much complicates this claim. When people dislike the default, they might well opt out. See, e.g., Beshears et al. (2010). This point suggests that freedom of choice can be an important safeguard against welfare-reducing defaults, not least in the environmental area.

  91. 91.

    See, e.g., Kahneman et al. (1994) and McGraw et al. (2010). Vivid evidence of loss aversion can be found in Card and Dahl (2011) (finding an increase in domestic violence after a favored team suffers from an upset loss in football).

  92. 92.

    See Fryer et al. (2012).

  93. 93.

    See id. at p. 1.

  94. 94.

    See id.

  95. 95.

    For a valuable discussion of loss aversion and its importance in an area of great environmental interest, see Homonoff (2013). Homonoff shows that a $0.05 tax on grocery bags in the District of Columbia had a significant effect in reducing grocery bag use, while a $0.05 bonus for using reusable bags had essentially no effect.

  96. 96.

    See supra at nn. 11–13 and accompanying text.

  97. 97.

    Brown et al., supra note 76, at p. 133.

  98. 98.

    Löfgren et al., supra note 79, at pp. 67–69.

  99. 99.

    See Dinner et al., supra note 58, at pp. 335–340.

  100. 100.

    Id. Recall, however, that the study was a laboratory experiment, not a randomized trial. If people actually had to take steps to change the default—rather than merely answering questions about whether they would do so—the switch rate would likely have been smaller.

  101. 101.

    See generally Costa and Kahn, supra note 10 (finding that Republicans actually increased their energy usage after learning about social practices involving energy efficiency).

  102. 102.

    See Beshears et al., supra note 91, at p. 8.

  103. 103.

    Id.

  104. 104.

    Id. at p. 10.

  105. 105.

    See, e.g., Brown, supra note 76.

  106. 106.

    See Just and Wansink (2009).

  107. 107.

    For supportive evidence, see Costa & Kahn, supra note 10, at p. 17.

  108. 108.

    See Shah et al. (2012).

  109. 109.

    Infas Energiemontor (2012), supra note 85.

  110. 110.

    See Löfgren et al., supra note 79, at p. 69.

  111. 111.

    See Micklitz et al. (2010).

  112. 112.

    See Craig Smith et al. (2009).

  113. 113.

    There are strong indications that this is the case in Germany, and demand for green energy has in fact risen dramatically in recent years. See generally Federal Ministry for the Environment, Nature Conservation and Nuclear Safety (2012).

  114. 114.

    See Sunstein (2013b) [hereinafter Storrs Lectures] (discussing behavioral market failures).

  115. 115.

    Id.

  116. 116.

    See generally Thaler & Sunstein, supra note 2.

  117. 117.

    The Cabinet Office Behavioural Insights Team in the United Kingdom is actively engaged in such projects, including in the domain of energy. See Cabinet Office Behavioural Insights Team (2011).

  118. 118.

    For a valuable discussion, see Johnson & Goldstein, Decisions by Default, supra note 18.

  119. 119.

    Distributional issues may of course matter as well—a point to which we will return. See infra at n. 146 and accompanying text.

  120. 120.

    On some of the foundational questions, see generally Adler (2011).

  121. 121.

    See Muller et al. (2011).

  122. 122.

    See, e.g., Interagency Working Group on Social Cost of Carbon (2010). For an illuminating critique, see Nordhaus (2011).

  123. 123.

    See Technical Support Document (2010), supra note 123, at p. 39.

  124. 124.

    See Interagency Working Group on Social Cost of Carbon (2013).

  125. 125.

    See, e.g., Wansink and Hanks (2013).

  126. 126.

    See infra at n. 140 and accompanying text.

  127. 127.

    See Wansink (2014).

  128. 128.

    See infra at n. 140 and accompanying text.

  129. 129.

    Sendhil Mullainathan and Eldar Shafir, supra note 87, at pp. 147–157 (discussing effects of limited “bandwidth” on decisions by low-income people).

  130. 130.

    See Rebonato (2012) (objecting to the paternalism of default rules and related approaches).

  131. 131.

    See Storrs Lectures, supra note 115, at pp. 1867–1890 (defending mild forms of paternalism); Sunstein (2014) [hereinafter Why Nudge?].

  132. 132.

    See Keller et al. (2011).

  133. 133.

    Id. at p. 379.

  134. 134.

    Id.

  135. 135.

    Id.

  136. 136.

    Id.

  137. 137.

    Id.

  138. 138.

    Id.

  139. 139.

    See Johnson et al., supra note 21, at p. 491 (discussing “sensory defaults” and “predictive defaults”).

  140. 140.

    We have noted that the ideas of “green” and “gray” are not dichotomous, and include possibilities that can themselves be arrayed along a continuum; the same is true of “costless” and “costly” opt-out.

  141. 141.

    See generally Adler, supra note 121; see also Adler and Posner (2006).

  142. 142.

    See Why Nudge?, supra note 132; Bartling et al. (2013) (noting that entrepreneurs and scientists “effectively forego earnings for their self-employment,” suggesting that individuals may, in some circumstances, suffer a monetizable loss as the result of a reduction in their autonomy).

  143. 143.

    A behavioral market failure might justify a mandate or ban, but even in the face of such a failure, freedom-preserving responses are usually best. See Storrs Lectures, supra note 115, at p. 1861.

  144. 144.

    See, e.g., Ellerman et al. (2000).

  145. 145.

    See Graham (2008) (discussing the importance of considering the effects of regulations on low-income people).

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Acknowledgement

We are grateful to Cassie Chambers and Daniel Kanter for excellent research assistance.

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Authors and Affiliations

  1. Harvard Law School, Harvard University, Cambridge, MA, USA

    Cass R. Sunstein

  2. Department of Intercultural Communication and Management, Copenhagen Business School, Frederiksberg, Denmark

    Lucia A. Reisch

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  1. Cass R. Sunstein
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  2. Lucia A. Reisch
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Correspondence to Cass R. Sunstein .

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  1. FB 7, University of Kassel, Kassel, Germany

    Frank Beckenbach

  2. adelphi consult, Berlin, Germany

    Walter Kahlenborn

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Sunstein, C.R., Reisch, L.A. (2016). Behaviorally Green: Why, Which and When Defaults Can Help. In: Beckenbach, F., Kahlenborn, W. (eds) New Perspectives for Environmental Policies Through Behavioral Economics. Springer, Cham. https://doi.org/10.1007/978-3-319-16793-0_7

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