I’ve been thinking a lot about risk tolerance and discount rates lately, and how they profoundly shape our perception of the economic costs associated with minimizing climate change. Basically… if you’re willing to vary your preference for the present over the future or the level of uncertainty you’re willing to accept, then you can make mitigation cost whatever you want. All else being equal, low discount rates and low risk tolerance make taking action cheap, while high discount rates and high risk tolerance make it expensive.
Unfortunately, we live in a society with high discount rates and high risk tolerance. Or at least, that’s what you’d infer from our collective behavior. It’s also what you’d gather from a lot of the rhetoric around climate action, and our obsession with trying to make it “economically efficient”, to the point of maybe not doing it at all. Our risk tolerances and discount rates aren’t really objectively measurable. They are fluid, and context sensitive. The same person in different situations will not behave consistently. Different people in the same situation may come to different conclusions. How we deal with uncertainty and the value of the future is a personal as well as cultural decision.
For some reason, I find myself with a low pure time preference, and an aversion to many kinds of risk. This is part of why I find our unwillingness to act on climate infuriating, and why I’m working on climate policy. I got to wondering, how did I end up this way? Why isn’t it more common?
Discount rates determine time horizons. How quickly does the future fade away? I spent a huge part of my education studying astronomy and geology and planetary science. I was obsessed with the Pleistocene as a kid. These are my timelines. Four and a half billion years since the Earth was shattered and the moon coalesced. 700 million years since the first charismatic megafauna arrived on the scene. 65 million years since the dinosaurs vacated the premises and our warm fuzzies took over. 73,000 years since Mt. Toba erupted in Indonesia nearly wiped the humans out. The Long Now stretches forward too — into deep civilizational time, if we’re both wise and lucky. To work on robotic space exploration and dream of our sentience drifting between the stars requires a long view, a hope or expectation of indeterminate future. With that hope comes a pure time preference that’s close to zero, at least for species-scale decisions. The value of this enterprise is not cut in half every 7 years, or even every 70. You cannot invest a generation out, let alone a thousand years out, if you are constrained by your weighted average cost of capital. In some kinds of enterprise, our markets fail utterly.
My risk aversion I chalk up to time spent traveling under my own power in the wilderness, far from any hope of rescue. When you know you will not see another human being for weeks, and you are truly on your own, in an environment that is not benign, risk looms large. The penalty for a minor screw up can be death. Kayaking in the Sea of Cortez, at the whim of the winds and waves, pinned down for days on the beach by the crashing surf. In a desert by the sea with no roads and no communication. We started running out of water when the storms kept us from reaching our destination on time. A stubbed toe got infected. My boat was damaged and began to leak. But we had the parts to make a still, we had soap and antibiotics, fiberglass and resin. Because we were prepared, we could just wait out the storms. We were never forced to paddle in dangerous weather.
It’s interesting that my risk aversion doesn’t keep me from traveling in the wilderness. There’s something about that kind of experience, where the risk is real and self-reliance is mandatory, that I find invigorating. To some degree it’s the awareness of the risk that makes the experience feel hyperreal. The joy of the challenge isn’t in the elimination of risk, but in its thoughtful mitigation. Successfully thinking through many possible failures, and how to make them graceful instead of catastrophic. How to keep them from cascading.
As social animals, I think we’re naturally a little insulated from the risk that comes from isolation. There’s usually someone there to help in an emergency. Certainly in the modern society of the global north, it’s quite rare to experience that kind of mandatory self-reliance. I think this dulls our sense of risk. Instead we suppose that we’ll muddle through somehow. That we can play it by ear. That there will probably be someone to lean on if need be.
Unfortunately, we are alone in our own wilderness as a civilization. As a species. As a biosphere. We are trapped here on Earth, surrounded by the unfathomably vast and hostile depths of space. There is no help for us. There is nobody to lean on or learn from. The penalty for even a minor alteration of our atmosphere’s chemical composition and optical properties might just be extinction. Aversion to risk under these circumstances doesn’t seem so unreasonable.
Our task isn’t to optimize and run our civilization as efficiently as possible. Our task is to ensure that come hell and high water, we make it through alive. If you agree, then minimizing climate change isn’t expensive but worthwhile — those values actually mean that climate action is cheap!