The Science, Business, and Politics of Climate Change
On Thursday May 9th, Dr. Shefrin gave a public talk at the University of Manitoba, discussing three key themes associated with climate change; science, business, and politics. His insight into the human psyche, knowledge about economics, and interest in the environment gives Dr. Shefrin a unique perspective on the issue of climate change. Dr. Shefrin draws a connection between human behaviour and climate change, which he describes as “one of the most urgent challenges faced by the human race”.
As emphasized in Dr. Shefrin’s talk, the science behind climate change is hard to deny. In 1981, James Hansen, who Dr. Shefrin describes as “the most important climate scientist today”, predicted the climatic implications of increased atmospheric carbon dioxide. These predictions include drought in North America and Central Asia, erosion of the West Antarctic ice sheet, rise in sea level, and the opening of the Northwest Passage. Today in 2019, we are able to see that Hansen’s 1981 predictions are coming true. Dr. Shefrin states that the accuracy of Hansen’s predictions is more than just luck. The odds are that his theory is correct. With the effects of climate change looming large, people want to know how the economy will be affected.
Dr. Shefrin makes it clear that companies and businesses have to adjust to climate change systematically. They will need to disclose information on how they manage and plan for climate damage, as factors such as location will become a liability in the face of droughts, sea level rise, and natural disasters. Dr. Shefrin states that shifting resources is necessary in order to mitigate climate change. Opportunities to shift resources include turning towards alternative energy sources, sustainable agriculture, and implementing flood control. Businesses will need to be at the forefront of these changes in order to make an impact on climate change.
William Nordhaus’ Integrated Assessment Model points us in the direction of another effective economic policy for dealing with climate change; taxing carbon. Although the model predicts that carbon taxation will be effective in lowering carbon emissions and reducing global temperature, people are less than enthusiastic about sacrificing their income and way of life for future generations. Dr. Shefrin brings attention to the fact that we have the knowledge and tools to mitigate climate change yet have not done enough. We have chosen to ignore the warnings and evidence that we have had knowledge of for years. His understanding of human behaviour helps shed some light on why we haven’t acted on climate change.
There are many factors that contribute to our inaction. Mixed beliefs regarding whether climate change is real, mixed preferences on when and how to handle climate change, confirmation biases, and motivated reasoning are just a few of the conflicts that are preventing a call to action. The greatest challenge, however, is the fact that in order to solve climate change, we have to exhibit great sacrifice today. In an anthropocentric society, that is not easy to do. Dr. Shefrin proposes that incentives to reduce the effects of climate change should focus issues on health and jobs, things that resonate with people. He stresses the fact that framing is crucial when it comes to decreasing behavioural issues that stand in the way of fighting climate change.
With climate change becoming a reality, Dr. Hersh Shefrin’s talk emphasizes how business and public policy intersect to create the place where climate change mitigation takes place. With the right language and focus on anthropocentric values, we will be able to influence people and companies to make business decisions that will prepare for a challenging and uncertain future.
Dr. Hersh Shefrin, a professor from the Santa Clara University, is known for his pioneering work in behavioural finance. After graduating from the University of Manitoba with a Bachelor of Science in 1970, his professional accomplishments have led him back home to receive the University of Manitoba 2019 Distinguished Alumni Award for Lifetime Achievement.
Written by Lauren Sheedy