I'm working with a colleague here, Brian Roe, on trying to understand the physical (neurological, genetic,...) foundations for the way people make decisions under risk. There's really some interesting work being performed by economists trying to test the basic foundations of economic models. For the most part, economic models are holding up under scrutiny (at least in my opinion), but there are a few cases where science is calling into question the economic underpinnings. Let me talk about one.
The following is an excerpt taken from a working version of a paper Brian will be presenting at the Resources For the Future "Frontiers of Environmental Economics" conference later in February.
McClure et al. (2004) document the role of product branding in the processing of primary rewards. In their famous reworking of the “Pepsi Challenge” the authors gather fMRI images as subjects taste Pepsi and Coke. In some scans the subjects were not informed which brand was being delivered (blind), while in other scans the delivery of one type of cola was always preceded by the presentation of that brand’s logo and associated imagery (branded). Brands and their associated images are key strategic elements of many business plans, and often, through vast, sustained, and costly advertising and promotional campaigns, the imagery has pervaded American and world culture.
When tasted without brand identification, subjects’ choices between Coke and Pepsi were equally split and not significantly correlated with their previously stated brand preference. However, the brand they chose in the blind taste test did generate a larger BOLD signal in the ventromedial prefrontal cortex (VMPFC), a region known for registering primary (gustatory) rewards. The two brands engendered no other differences in activity in other regions of the brain so long as the scanned subjects were blind to cola’s brand identity.
In a standard taste test, subjects systematically preferred Coke to an unlabeled alternative, which subjects were told could be either Pepsi or Coke, but was always Coke. However, when the same taste test was given for Pepsi, subjects did not systematically prefer Pepsi to an unlabeled alternative, where subjects were once again told the alternative was either Coke or Pepsi but, in reality, was always Pepsi. Hence, the subject pool regularly preferred labeled Coke to unlabeled Coke, but were essential indifferent between labeled and unlabeled Pepsi. In other words, people prefer Coke to iteself when they know it is Coke, but not Pepsi to itself when they know it is Pepsi. Not only that, when subject know that they are drinking Coke, an entirely different region of the brain 'lights up' than when they are drinking Coke but don't know it. The same cannot be said for Pepsi.
What's this mean? Branding matters. Subjects preferences shift depending on what they know about what they are consuming. Notice that nothing has changed about the product. In both cases rthey are consuming teh same combination of chemicals (Coke). But simply knowing it is labelled Coke, makes the subects better off.
What does this mean in terms of economics? Consider a 'policy' to remove Coke from the market. Traditional economic policy analysis would weigh the relative utility of consumers before and after the removal of Coke from the market and assign a dollar value to the welfare loss. It doesn't matter whether the consumer knows it is Cokle they are consuming or not, the welfare loss is the same. But, this current research leads to a very different conclusion: The weflare loss from removing Coke depends on wehat the consumer knows about the product before it is removed from the market, and what happens to relative preference for other goods after removal. In other words, people are much worse off if they know the brand thean if they don't even though the product is identical.
What does this have to do with the environment? Let's think about global warming policy--for arguments sake a carbon tax. The economic benefits of a carbon tax are the utility gains to current and future generations of potentially slowing the warming trend. Those utility gains are measured relative to the case of no action (the current conditions remain in place). In terms of evaluating the policy, it doesn't matter what the policy is targeting, just the outcome.
But the Coke research says, that labeling the policy 'Human Induced Global Warming Prevention Act,' may result in a very different utility change than labelling it 'Long-Term Climate Stabilization Act.' Even though the outcomes are observationally equivalent, and people know it, the measured utility change (willingness to pay) might be very different depending on the label. I think that is what this article is trying to say:
In their efforts to capture the public's attention, then, have climate scientists oversold global warming? It's probably not a majority view, but a few climate scientists are beginning to question whether some dire predictions push the science too far.
"Some of us are wondering if we have created a monster," says Kevin Vranes, a climate scientist at the University of Colorado.
Vranes, who is not considered a global warming skeptic by his peers, came to this conclusion after attending an American Geophysical Union meeting last month. Vranes says he detected "tension" among scientists, notably because projections of the future climate carry uncertainties — a point that hasn't been fully communicated to the public.
The science of climate change often is expressed publicly in unambiguous terms.
[...]
Nearly all climate scientists believe the Earth is warming and that human activity, by increasing the level of greenhouse gases such as carbon dioxide, has contributed significantly to the warming.
But within the broad consensus are myriad questions about the details. How much of the recent warming has been caused by humans? Is the upswing in Atlantic hurricane activity due to global warming or natural variability? Are Antarctica's ice sheets at risk for melting in the near future?
To the public and policymakers, these details matter. It's one thing to worry about summer temperatures becoming a few degrees warmer.
