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In Praise of a Healthy Status Quo Bias

This is a smart post from Mike Rorty:

the thing that worries me about the Cost-Benefit Analysis (CBA) approach to this issue is that there is always an implicit “do-over” cost in CBA. If we start a marketing campaign, hire a new team, or build a factory we do a CBA. If it turns out wrong, we simply stop the campaign, lay off the new team, or dynamite the factory. We eat our sunk costs and are back at square one. Sometimes this is costless, sometimes you have to pay for the dynamite. Indeed estimating the cost of this metaphoric dynamite should be high on the list of the CBA.

Now if 100 years from now, we want to “do-over”, how much will it cost to ‘dynamite’ the previous 100 years of warming? How much of GDP will we have to spend to get back an additional 10-20% of biodiversity? I’m worried that we are looking at Planet Earth as the sunk costs in these CBAs, and that makes me very worried, and being very worried makes me more willing to spend. We can’t just jump to another Earth if we got it wrong, in the same way we can build a new factory if our projections were off.

Right. One thing you have to think about when discussing probabilities is not only how much of a downside there is to something, but how much you fear that downside. For instance, if you walk into a casino, you might place a 60 percent likelihood on losing $500. But you might have decided that you don't really care if you lose $500. You don't fear the downside probability very much.

Conversely, if a doctor tells you that you should get a large mole removed in a painful and expensive operation because there's a 5 percent chance that it's malignant, you probably get the mole removed. You fear the downside quite a bit.

I would submit that even a small possibility of a chaotic and dramatic transformation in the earth's climate -- a transformation as large as the difference between the Ice Age and today -- should be a downside we fear quite a bit. You hear about cap-and-trade getting bottled up in committee and critiqued by Evan Bayh and argued out on "Meet the Press" and there's a tendency to think it just like any other issue. It gets normalized. But in reality, it's in the small category of problems -- nuclear proliferation being another -- where getting this wrong carries the possibility of unimaginably devastating consequences.

By Ezra Klein  |  June 29, 2009; 9:06 AM ET
Categories:  Climate Change  
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Exactly. But climate change is unique in that the other problems in the aforementioned category don't have a rogue portion of elected officials and pundits denying that they even exist.

Even those on the correct side of this issue dress up the current climate change legislation as an industry-friendly jobs program. Why can't the argument that we must take aggressive measures or risk a fate worse than The Day After Tomorrow suffice?

Posted by: ErininAtlanta | June 29, 2009 9:44 AM | Report abuse

I like the concept of cap and trade. The House bill, however, is an abomination. If something close to the House bill passes, we're stuck with it for a long time. If it doesn't pass, we can try to enact a decent bill in 2 or 4 or 6 or 10 or 15 years from now, presumably after it's gotten even hotter. The notion that we only have one chance is ridiculous.

Posted by: ostap666 | June 29, 2009 10:01 AM | Report abuse

The cap-and-trade bill is a bargaining chip so the US can 'ante up' in international discussions.

Waiting until the nation is swept with waves of hysterical fear is not the best option.

Posted by: serialcatowner | June 29, 2009 10:17 AM | Report abuse

Cosma Shalizi has done some good posts about this over the years. People talk all the time about the uncertainty in climate forecasts as if the only important thing is somehow feeling we got rooked if we spend all this money and warming is less than we thought it was. Seldom does anyone get into the fact that the upper end of the uncertainty range is effectively just as likely as the lower. And if it comes to pass, we are so up the creek.

Posted by: paul314 | June 29, 2009 11:34 AM | Report abuse

Good point, Ezra. And on the other extreme, if climate change turns out to be not as bad as we thought, after we spent a lot of time, money and effort rebuilding industry to be more efficient with fewer emissions, what's the downside? A lot of (taxable) economic activity, more efficient industries, fewer emissions.

Remind me again why Waxman-Markey doesn't just fly through Congress?

Posted by: Rick00 | June 29, 2009 2:13 PM | Report abuse

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