1. The Cambridge Centre for Climate Change Mitigation Research (4CMR) Human Behaviour Under Risk and Uncertainty: Are We Really Just Conservative? Martin Sewell envecon 2011: Applied Environmental Economics Conference The Royal Society, London 4 March 2011

2. Evolutionary psychology Natural selection is a slow process Our minds are adapted to seeking the goal of reproduction on the African savannah during the Pleistocene No viable rival hypothesis Unsure of the details The best place to start when considering human behaviour

3. Status quo bias The gene is biased towards survival The individual is biased towards reproduction In order to reproduce, individuals must survive I have survived thus far without eating this berry, so why should I risk eating it now? The status quo bias (also known as ‘conservatism’) is perhaps the most fundamental bias.

4. Risk aversion Risk aversion exists when an individual prefers a guaranteed payoff to an uncertain payoff with the same expected value. An agent possesses risk aversion if and only if the utility function is concave.

5. Risk aversion and multiplicative processes For a multiplicative process such as reproduction, it is the logarithm, in this case of population, that is additive. If one is risk neutral in terms of log(population), because the log utility function is concave, it follows that one must exhibit a small degree of risk aversion regarding population. Wealth is another example of a multiplicative process. Exhibiting a small degree of risk aversion for a multiplicative process such as wealth is rational.

6. Endowment effect People value a good or service more once their property right to it has been established.

7. Loss aversion Losses and disadvantages have a greater impact on preferences than gains and advantages.

8. Kahneman, Knetsch and Thaler loss aversion   endowment effect status quo bias

9. Gal 2006 inertia + fuzzy and ill-defined preferences  a propensity towards the status quo    status quo bias risk aversion endowment effect (loss aversion ‘superfluous’)

10. Gintis (2007) group living  private property  endowment effect  loss aversion

11. Decision making under risk Descriptive accounts of decision making under risk: 1.prospect theory (Kahneman and Tversky 1979) 2.cumulative prospect theory (Tversky and Kahneman 1992) 3.transfer of attention exchange model (Birnbaum 2008)

12. Conclusions We prefer the status quo We have a rational tendency towards slight risk aversion The evolution of private property led to the endowment effect Loss aversion exists, but is merely an artefact of the endowment effect

13. Martin Sewell mvs25@cam.ac.uk