Psychology in Economy

A New York Times article begins:

"Forecasts involving climate change are highly uncertain, denialists assert — a point that climate researchers themselves readily concede. The denialists view the uncertainty as strengthening their case for inaction, yet a careful weighing of the relevant costs and benefits supports taking exactly the opposite course."

Now, this is an article about global warming, but it is in the Economy section of the website. So I read on:

Essentially, the risk is that if current estimates turn out to be wildly pessimistic, the money spent to curb greenhouse gases wouldn’t have been needed to save the planet. And yet that money would still have prevented substantial damage....

Moreover, taking action won’t cost much. According to estimates by theIntergovernmental Panel on Climate Change, a tax of $80 a metric ton on carbon dioxide — or a cap-and-trade system with similar charges — would stabilize temperatures by midcentury.

This figure was determined, however, before the arrival of more pessimistic estimates on the pace of global warming. So let’s assume a tax of $300 a ton, just to be safe.

Under such a tax, the prices of goods would rise in proportion to their carbon footprints — in the case of gasoline, for example, by roughly $2.60 a gallon.

A sudden price increase of that magnitude could indeed be painful. But if phased in, it would cause much less harm. Facing steadily increasing fuel prices, for example, manufacturers would scramble to develop more efficient vehicles.

The article goes on to discuss how rationally it is an easy decision. Global warming needs to be stopped and the opportunity costs of taxing carbons and trading in fuel inefficient vehicles is small compared to the obvious benefits of preventing climate change. This is where the article takes an interesting turn.

It discusses why people aren't worried about global warming, and why change hasn't happened yet. It's a psychological answer. "Global warming is bad," says Harvard psychologist Daniel Gilbert, "but it doesn’t make us feel nauseated or angry or disgraced, and thus we don’t feel compelled to rail against it as we do against other momentous threats to our species...Moral emotions are the brain’s call to action."

I found this point intriguing, as it suggests that without the proper psychological incentive, rational decisions can be tossed aside. In the case, the actions against global warming seem both environmentally and economically rational, so I wonder what it will take for people in power to take the necessary steps to fix this problem.