Abraham Sam, "BENVGEC9", Week 2

Pollitt, M. G. and Shaorshadze, I. (2011) The Role of Behavioral Economics in Energy and
Climate Policy, University of Cambridge, Electricity Policy Research Group, Available from:
http://www.eprg.group.cam.ac.uk/. Sections 1 (Introduction) and 2 (Behavioural Economics
vs. Neoclassical Economics) - i.e. pp. 1-7.

Type of Text

Pollitt and Shaorshadze (2011) is a practice text exploring how behavioural economics can be
applied to energy and climate change policy. While the whole paper discusses a range of
issues, the 7 pages assigned for this exercise focus on the main concepts of behavioural
economics and how it differs from neoclassical economics.

Main Points

Behavioural economics uses insights from psychology to increase the explanatory power of
economics. It challenges the assumptions of neoclassical economics while offering
alternatives for modelling decision making. While traditional economics assume rational
behaviour, behavioural economists stress behaviour failures which lead individuals to act
against their own long-term interest. According to the authors, the main departures from
neoclassical economics are in the areas of (1) timevarying discount rates, (2) prospect theory
and importance of reference points, (3) bounded rationality, and (4) prosocial behaviour and
fairness.

Application to Policy

According to the paper, behavioural economics can inform decision making for energy
policy. The achievement of the 450 scenario depends on the direct end-use energy-
efficiency measures. The authors suggest that individual attitude towards energy
consumption will help in achieving this goal and behavioural economics can inform policy
design on how individuals evaluate options, make decisions and change behaviour. The
authors stress that behaviours relevant to energy consumption include (1) consumption,
curtailment, and habits; (2) energy efficiency investments; and (3) contribution to public
goods and pro-environmental behaviour.

Interesting Points, Disagreements and Limitations

I am intrigued by what the authors term as energy transformation strategies. I am, however,
not sure how this will be used to help save energy and reduce emissions.
I have no disagreements with the authors on the 7 pages assigned. I am, however, curious to
explore the limitations of behavioural economics relation to energy policy. As the authors
admit behavioural economics seems unlikely to provide the magic bullet to reduce energy
consumption required the 450 climate policy scenario though it offers new suggestions as
to where to start looking for potentially sustainable changes in energy consumption.