Climate Change Risk, and Human Behavior: Theory and Evidence

A group of decision makers simultaneously make contributions towards a green fund that reduces the future probability of a climate catastrophe. We derive the theoretical predictions of the effects on contributions arising from `behavioral parameters' such as loss aversion and present-bias; `structural factors' such as variation in the timing of uncertainty; the `demand for a commitment device'; and `institutional factors' such as comparing voluntary contributions with mandatory tax financed contributions. We then run experiments to stringently test our predictions. Loss aversion and present-bias reduce contributions; there is demand for the commitment technology; and voluntary contributions are higher relative to mandatory tax-financed contributions.