Venu says

I find it worrisome that you are making quite strong claims (global warming can be handled by markets alone) and then casually stating that you don’t have any evidence for them.

No! I didn’t say that.  All I say is that we will not act on Global Warming at the optimal time. To use an overworked analogy – Hitler. Perhaps there was a time at which he could have been tackled without the enormous carnage of WWII. My view is that given what human nature is, this was unavoidable. We aren’t good at foreseeing and agreeing to act on uncertain threats in the distant future. We are, however, good at getting our act together in the face of a crisis. When we do try to fix problems too distant in the future, we make a lot of mistakes and there is a good chance that we make things worse. So, I propose that we go with the flow and not do anything about Global Warming, and leave things for our children to fix. When we do fix it, we will probably not rely on the market entirely, but we will still be relying on market-like mechanisms.

Ritwik says

Isn’t the market nothing but an aggregation of human behaviour? If you’re agreed in theory and premise with the behaviourists (about hyperbolic discounting, etc.), how are your recommendations so different from the ones they make – why do you (and others like you) consider subject matter expertise to be so important in say, science, but not in policy?

Because behaviourists have not yet come up with practical and actionable recommendations. I know that you have written out the theory of how behavioural economics will prove the EMH wrong. But behavioural economics, while it explains very well why bubbles form, is still unable to tell us the exact, or even approximate moment at which the bubble will burst. Without that, we do not know how to profit from the irrationality of the stock markets.

Likewise, all their “policy recommendations” amount to:

  1. Here is a behavioural quirk that causes ordinary human beings to behave in a way not predicted by standard economic theory
  2. Here is a policy recommendation that fixes the above, which we will assume, for the purposes of simplicity, will be put in place by detached technocrats not subject to the quirks above.

We do not yet have a model of human behaviour that can be used to make predictions about the impact of specific policies when all behavioural traits are considered, and when the fact that even policy-making and implementation is subject to the same quirks is considered. Given this, I did the only scientifically responsible thing possible – I used behavioural psychology to understand (science) but not recommend (policy)

Not everything reduces to incentives, at least in the way that we formally study them. Incentives are great at explaining the average truth, the usual explanation for why something happens. They fail miserably when explaining fringe behaviour or initiatives to tackle fringe issues. By fringe here, I mean not unimportant, but at the edge of our knowledge, efforts and motivations. Of course, one can use a slippery definition of ‘incentives’ and then everything can be considered a function of incentives.

What has this got to do with my post?

And at the end of it all, I am still wondering what your point is. Is it that we won’t be able to ’solve’ global warming, assuming that it is a problem in the first place?

See above – that we will not be able to solve Global Warming at the “optimal” time, and that we shouldn’t try to solve problems too much in advance.  Also, correcting for market failure is not a simple thing.

17 thoughts on “Responses

  1. 1. You refer to the detached technocrats being subject to the same quirks asthe average populace that they are trying to correct. You also mention that as yet, there is no model to predict the effect of policies formulated by these technocrats. Fair enough in theory. History does not bear you out though. Why should there be a complete model before we make the policy step? Historically, the practitioners do some clever things and then the theorists formulate the theory, measure the data (which won’t be there without the practitioners in the first place) and try to see if the data fits the model or if the model needs to be refined. Have the best framed and managed social/ policy institutions proceeded from a complete predictive theory of how they will behave? How did they get to be so good if they didn’t, and why should the scientific requirement from the new institutions/policies that behaviorists are proposing be any greater?

    2. I refer to incentives because I thought that your entire argument was based upon the human failure to frame incentives for something as simple as CEO performance/ compensation, and extrapolating that to the much more complex challenge of global warming. More operationally, my point is – the need to frame a fool-proof system of incentives can be overcome through policy/legislation undertaken by technocrats that makes the rationally/ scientifically correct decision the default option. For example, this –

    3. I do agree with the basic point that we shouldn’t try to solve problems too much in advance. I’m not sure if this applies to global warming or other environmental issues currently. However, I think the main challenge in these fields is not the human fallibility in framing incentives, but that the science backing one policy recommendation or the other is far from settled.

  2. Ok, let me not get into a fruitless debate about what you did or did not claim.

    I guess I have two main disagreements at this point:

    1. Global warming is not an “uncertain threat in the distant future”. It is already here, entire villages above the Arctic circle are having to move due to the rapid climate changes, Hurrricane Katrina already came and went etc. etc. (I am trying to be as non-shrill as I can be here.) And I still don’t see how we’ll fix this problem unless the govts. of the world decide to get serious about it – i.e .I don’t see what the market (or any other “market-like mechanisms”) are doing to fix the problem. The initiative has to be taken by governments, and remember that much of the research that enables us to understand and realize that global warming is happening is funded by governments.

    Oh, and there are clear metrics for us to see how well any proposed policy is working w.r.t global warming – carbon emissions. If a given policy succeeds in its aimed reduction in carbon emissions, then its successful – otherwise chuck it or change it.

    2. Why always invoke the bogeyman of govt. regulation for every suggestion of market failure/human irrationality/xyz? The insights of behavioral economics need not necessarily be for govt. bureaucrats – they can make a difference to market participants too. The more market participants know about possible biases they may have in their decisions, the more rational they have a chance of coming. And markets with more rational participants will be more efficient, no?

  3. Ho hum! How is it that all the windbags of the world end up here? After a long time, you wrote a good post (the last one). Now you have ruined it.

  4. Wait. Scratch the part about there being a clear metric for testing global warming policies. Obviously just using reduced carbon emissions as a metric takes into account the benefits but not the costs of the policy. So evaluation of policy is going to be trickier than I let on in the previous comment. Hmm.

  5. So, I propose that we go with the flow and not do anything about Global Warming, and leave things for our children to fix.

    I can’t believe that your ideologies lead you to this.

    Would you *regulate* and reduce the use of plastic bags? Or wait for your children to take care of that too?

    I am anticipating a response that would say I didn’t understand you properly. In fact I am really hoping that I didn’t get what you said right.

  6. Swami, a reading comprehension exercise for you:
    1) Forget my ideology
    2) Follow the reasoning in the last two posts
    3) Explain to me how the reasoning applies to plastic bags.

  7. Ravi,
    I am a little too old to tie myself up in knots over the logic/reasoning puzzles you throw at me. Think of me as the layman (aam aadmi) who wants to know whether you will regulate against pollution (that could cause global warming eventually) now, or will you leave it for later until it blows up as a HERE and NOW crisis.

  8. To – Can we tackle global warming now?

    Even if we eliminate the market from the equation, there still remains the problem that we can’t expect people to take the right next steps just because those steps will benefit their grand children.

    So should we regulate and punish?

    Do we know the global economy well enough to say with sufficient level of confidence that the rewards and punishments that we are proposing will in fact provide an incentive to take those correct next steps?

    Can we do anything at all?

    Given this, I can only look at the efforts to tackle global warming with bemusement.

    So what is your proposal? What about those landfills and incinerators that pollute our environment? Don’t we need to be more responsible about our consumption and waste management?

    So, I propose that we go with the flow and not do anything about Global Warming, and leave things for our children to fix.

  9. Now explain to me how you went from a specific statement that we shouldn’t tackle global warming *now* to a general statement that we shouldn’t tackle any environmental problem at all.

  10. No, really. My argument about global warming was a specific one. It wasn’t about other environmental problems. It was about global warming. It had nothing to do with my ideology and everything to do with my claims about human nature. There was a reasoning behind it which I have laid out over 2 posts. Instead of arguing with that reasoning, you claim that my “ideologies led me to” the conclusion. Now you want me to tackle other environmental issues. Why would I want to do that if at the end of it all you are going to do is see my ideological biases? You keep accusing me of being blinded by my ideology, but if you want me to argue on pragmatic grounds, well, argue with me on pragmatic grounds.

  11. if you see global warming as a specific issue and land and air pollution through toxic chemicals and gases that lead to GW as “other environmental issues”, let me repeat, you win.

    I probably made a logic error somewhere and I am not good enough to figure out where that error is. I am just hoping that there are others who would also make this logic error and interpret your statements my way.

    Which leaves us at the point that – your statement is open to misinterpretation – at least!

  12. Finally, arent you just reframing the global warming debate from a yes or no dimension to a timeline dimension and adding 2 spoons of circular logic in order to make it more “profound”? Namely, this is not the optimal time to solve global warming and therefore not the optimal time to find if global warming is a problem.

  13. Look, you started with polythene bag disposal. I don’t know the link between that and global warming, but I am sure someone, somewhere can find one. I don’t know how you manage to interpret my statement that we shouldn’t tackle global warming as “We shouldn’t tackle any problem that might inadvertantly contribute to the solution to global warming”.

  14. goober, where on earth did I say that this is not the optimal time to *find* if global warming is a problem? For that matter, where did I say that this is not the optimal time to solve global warming?

  15. I also wondered from where Swami got his reasoning to move from global warming to polythene bag disposal. Maybe because this post is garbage, his thoughts veered towards that?

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