Prospect Theory, Mitigation and Adaptation to Climate Change

Climate change is one of the most pressing challenges in current environmental policy. Appropriate policies intended to stimulate efficient adaptation and mitigation should not exclusively rely on the assumption of the homo oeconomicus , but take advantage of well-researched alternative behavioural patterns. P rospect theory provides a number of climate-relevant insights, such as the notion that evaluations of outcomes are r eference dependent, and the relevance of perceived certainty of outcomes. This paper systematically reviews what prospect theory can offer to analyse mitigation and adaptation. It is shown that accounting for reference dependence and certainty effects contributes to a better understanding of some well-known puzzles in the climate debate, i ncluding (but not limited to) the different uptake of mitigation and adaptation amongst individuals and nations , the role of technical vs. financial adaptation, and the apparent preference for hard protection measures in coastal adaptation. Finally, concre te possibilities for empirical research on the se effects are proposed.

Osberghaus, Daniel (2013), Prospect Theory, Mitigation and Adaptation to Climate Change, ZEW Discussion Paper No. 13-091, Mannheim.