Comments and Questions

Indeed, many problems arise from being overconfident with economic analytical models. Not only the financial crises but also how we deal with potential disasters such as a combination of tsunamis and nuclear power plants. One of the largest uncertainties mankind is facing is the exact impacts from climate change and whether mitigation and adaptation strategies will work out as expected. The biggest uncertainty is maybe not whether the climate models are correct but how, and whether other countries, regions, individuals will react. In the context of climate change the framework may offer some very interesting insights and testable hypothesis for future lab experiments. Individuals being exposed to threats of climate change already today need to take one-shot decisions on whether to stay or to migrate and stop farming etc. Thus, one important question may be how one can learn about uncertainty when one can only take one irreversible decision and has not really the possibility to learn from others choices. A bounded rational individual may do nothing since the uncertainty she is facing is too big and change from increasing climate is only accruing slowly. On the level of regions and countries, the precautionary principle would however, suggest action instead of inaction. Thus, how a collective decides may be different than how individuals decide. A potential interesting question could be whether bounded rational individuals are more likely to make mistakes or whether groups consisting of bounded rational individuals are more prone to mistakes?. In the context of climate change there is additionally the case that some lobbyists will intentionally try to spread doubts, playing down the scientific consensus, and focusing on uncertainties. Thus, although more knowledge is generated the initial uncertainty does seem to prevail with individuals for quite a long time. Maybe an interesting paper dealing with uncertainty in climate change is Weitzman, Martin L. 2014. "Fat Tails and the Social Cost of Carbon." American Economic Review, 104(5): 544-46.