Chapter 20: Behavioural economics, consumption and environmental protection
Why do consumers choose as they do? Economists and social scientists have long answered by assuming that consumers are ‘rational’, in the sense that they maximize their utility. If consumers purchase energy-efficient appliances, it is because those are the appliances they prefer, and if not, it is because the benefits of energy-efficient appliances fail to justify the costs. In either case, the choices of consumers maximize their utility. On this view, the role of government is straightforward. Public officials should correct market failures by ensuring that consumers are adequately informed and by adopting policies to reduce transaction costs that prevent mutually advantageous deals or to correct for externalities (as when the environmental consequences of consumer choices are not internalized by consumers themselves). This simple framework has a great deal of power, but in recent decades it has been placed under serious strain (LeBoeuf and Shafir 2012). Sometimes consumers display bounded rationality, in the sense that they depart from the standard account in predictable ways. Because of those departures, consumers can make serious errors by their own lights, even in the absence of externalities (Allcott et al. 2012; Luth 2010).
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