Now It's Time for the Group Hug (Author One-on-One: Tim Harford)

Like Dan, I have enjoyed this discussion very much, and I hope that's true of Omnivoracious readers. It has been hard work--in a good way--and forced me to think carefully.

Let me finish by writing a bit about a subject I've been thinking about recently--it might help us find a bit of common ground and show why this discussion is important. Let's think about the problem of climate change, which is widely believed to require us to cut back a lot on our emissions of carbon dioxide. So what should we do?

Standard economics has a solution: a carbon tax, or a tradable permit scheme, to raise the cost of emitting carbon. We'd all have an incentive to cut down by driving less and turning down the heating or air conditioning, and also by insulating our homes and finding more efficient cars and fridges. Businesses would also cut back, and would have an incentive to develop new technologies.

Behavioral economics draws attention to different considerations. For example, we're not as smart as conventional economics assumes, which means that we might fail to notice ways to reduce our energy bills. We might also need to be reminded about what our neighbors are doing: psychologist Robert Cialdini showed that we're more likely to recycle if we think everyone's doing it. That may hold true for carbon-saving too. And although we're reminded of high gas prices every time we fill up, we really need to be reminded of them when we're buying a new car or a new fridge.

So which approach is right? That's a strange question. They can both be right, and I think that they both are.

Of course, the economic incentives will work. I don't think there's any serious doubt that raising the price of carbon would persuade us to pollute less. The Logic of Life showed that we are sensitive to these simple incentives in the most unexpected situations. For instance, raising the risk of unprotected sex persuaded American teens to have more oral sex instead; and two Australian economists, Joshua Gans and Andrew Leigh, have found that tax incentives can persuade pregnant women to delay labor, and even deter people from dying too quickly. (It's really true: the death rate in Australia dropped in the week before inheritance tax was due to be abolished, and then sharply rose the week immediately after. A lot of people were clinging on to life to avoid their estates being taxed.) If people will change their date of death or the day they have a baby in response to a tax incentive, I am quite sure that they will be more environmentally friendly, too.

But I am also sure the behavioral insights will produce results. Cass Sunstein and Richard Thaler report one dramatic success: people cut back dramatically if the electricity company gives them an "Ambient Orb" that glows red when they're using a lot of power. There's no standard economic theory that explains why that should be; and that is just one example.

So we need insights from both economics and psychology to make the world a better place. And I know that Dan will agree with me when I say that whatever we try, we should be checking carefully to see whether the idea is working as predicted, because the world is full of surprises.

Thanks to all Omnivoracious readers for dropping in on our debate.

Your logical friend,
Tim Harford