Economics need insights from psychology to understand human responses to climate change

In its 2015 World Development Report, World Bank emphasized the importance of incorporating psychological, social, and cultural insights in understanding how human can respond to climate change problems. Economics has already developed a new sub-discipline that integrate psychology and economics under relevant social and cultural context. It is known as behavioural economics.

Behavioural economics has been used in variety of real-world problems. US President Barack Obama, for example said that “Adopting the insights of behavioral science will help bring our government into the 21st century in a wide range of ways – from delivering services more efficiently and effectively; to accelerating the transition to a clean energy economy; to helping workers find better jobs, gain access to educational opportunity, and lead longer, healthier lives.” In fact, his government has been advised by prominent behavioural economists from US universities.

Climate change is such a large problem that multiple coordinated approaches will be needed to address it. Behavioural economics insight can make significant contributions to this problem. Actions by human in terms of climate change mitigation and adaptation involve various psychological factors which is often ignored in standard economic analysis.

The role of behavioural economics in the analysis of climate change mitigation and adaptation was a topic of discussion in an international seminar organised by UNPAD SDGs Center, in collaboration with Economy and Environment Institute of Indonesia (EEI-INDONESIA). The seminar was held in Universitas Padjadjaran campus, in Bandung, on 17 November 2016. It was opened by Prof. Armida Alisjahbana, Director of UNPAD’s SDGs Centre and Dr. Arief Anshory Yusuf, Director of EEI-INDONESIA.

The seminar features four speakers from Southeast Asian countries including Dr. Pam Khan Nam, Director of Economy and Environment Partnership for Southeast Asia, based in Vietnam, Dr. Rawadee Jarungrattannapong, from EEI-Lower Mekong Subregion, based in Bangkok, Mr. Phung Thanh Binh, from School of Economics, University of Economics, based in Vietnam, and Dr. Beria Leimona, from EEI-Indonesia. The seminar was chaired by Dr. Martin Siyaranamual, from EEI-Indonesia.

Dr. Nam introduce the role of behavioural economics in climate change issues such as how risk, time preferences, cooperation, trust, self control, social norms and other psychological factors affect how households make decision in responding to climate change impacts.

With the case of coastal erosion in Thailand, Dr. Rawadee presented the case where altruism, trust, and cooperation are important social factors that must be taken into account by economists and policy makers. Using a series of experimental games, the study pinpoints the complexity of cooperative behaviour in the field.

Mr Phung Thanh Binh from Vietnam presented the case that protective actions against flood is affected by social interactions and flood-risk training programs, giving more room for policy interventions. Meanwhile, Dr. Beria Leimona address the complexities of providing the right incentives for smallholders farmers in contributing to climate change mitigation and ecosystem service provision activities such as carbon sequestration. Understanding the nature of asymmetric information among actors is important in designing the right incentive mechanism.

The seminar conclude by acknowledging the need for future research with more multi-disciplinary nature particularly connecting the insights from psychology into economics analysis.

The seminar was sponsored by WorldFish, Swedish SIDA, and Canadian IDRC.

Materials presented in this seminar can be downloaded from here:
http://www.eepsea.org/o-k2/view-item/id-464/Itemid-192/
http://www.eepsea.org/o-k2/view-item/id-550/Itemid-192/
http://www.eepsea.org/o-k2/view-item/id-212/Itemid-192

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