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INFLUENCING FIRMS, CONSUMERS, AND POLICY MAKERS

future energy savings would more than compensate for higher up-front purchase costs (Gillingham and others 2009). Third, individuals suffer from “loss aversion”—that is, they weigh losses more than gains, evaluating both relative to a reference point (Tversky and Kahneman 1992). If individuals use the current situation as the reference point, they will consider the cost of environmental policy as a loss and weigh it more heavily than the gain (averted environmental damages). If the reference point is the future, when the loss is the environmental destruction, they will weigh it more heavily than the gain (the averted cost of environmental policies). Weber and Johnson (2012, 16–17) make the following observation about farmers: Skillful insurance salespeople have long known that they need to move a farmer’s reference point, away from its usual position at the status quo, down to the level of the possible large loss that could be incurred in case of drought. By focusing the insuree’s attention on the severity of the possible loss and resulting consequences, all smaller losses (including the insurance premium) are to the right of this new reference point, making this a decision in the domain of (forgone) gains, where people are known to be risk averse and will choose the sure option of buying the insurance.

Fourth, individuals have an aversion to ambiguity, which causes them to delay making decisions (Tversky and Shafir 1992). 3 Aversion to ambiguity is particularly problematic for environmental issues, such as climate change, that involve huge uncertainties: while it disappears if decision makers regard themselves as expert in a domain (Heath and Tversky 1991), few people consider themselves experts in environmental policy. Different behavioral changes can be triggered by different learning processes— such as learning by being hurt, being told, and observing and imitating (Weber and Johnson 2012). Learning by being hurt. Learning by being hurt refers to learning from personal experience. Because recent events have a strong impact, which recedes over time (Hertwig and others 2004), reactions to

low-probability, high-severity events often appear erratic. In particular, people usually overreact when a rare event eventually occurs (Weber and others 2004). For instance, extremely ambitious flood defense projects were designed after each big flood in New Orleans, but none has been completed so far, as public interest in the issue faded a few years after each event. This tendency to overreact to recent events and then forget needs to be taken into account in developing green growth strategies, especially for disaster risk management (Hallegatte 2011). Learning by being told. Learning by being told involves the absorption of objective information. For instance, hydrometeorological data can be collected and analyzed to generate quantified risk assessments that help individuals make informed choices. But providing information will not be enough to induce appropriate risk management or environment-friendly behavior, because people treat abstract information on distant events differently from concrete, emotionally charged information linked with real-world experience (Trope and Liberman 2003). So what is needed is a combination of communication tools that accounts for this bias and practical information on what needs to be done—for instance, rules to save energy or water or how to react in case of disasters. Learning by observing and imitating. Learning by observing and imitating has the concreteness that “being told” does not have, making action more likely. One way of encouraging learning by observing and imitating is to help individuals compare their behaviors with more environment-friendly ones and to provide them with feedback on their consumption and with tips on how to change their behaviors. In one experiment, an Internet-based tool that combined feedback on past consumption, energy saving tips, and goal setting was used to encourage households to reduce their energy consumption. Households with access to the tool reduced their direct energy consumption by 5 percent; household without access to the tool increased their consumption by

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Inclusive Green Growth  
Inclusive Green Growth  

As the global population heads toward 9 billion by 2050, decisions made today will lock countries into growth patterns that may or may not b...