NEW YORK, NY – Climate change continues to be a growing threat to our planet. Nevertheless, a recent survey from Pew Research shows that climate change is still a low priority for Americans, ranking 17th out of 21 national issues. While this is in part due to the fact that individuals form their climate opinions based on political affiliations, it is also a consequence of how the human brain works. Our brain has evolved to consider short term consequences at small scales, making it hard for people to think about the future, imagine catastrophic outcomes, or understand cause-effect relationships that are complex (i.e., the recycling of a bottle of water today and its impact on the magnitude of a tsunami in the future). This brain challenge carries over to other domains, such as the difficulty some have with saving for retirement or making lifestyle choices that impact long-term health.
A new Columbia Business School study identifies a tool to project the future onto the present and impose a cost on clinging on to politically motivated beliefs that contradict climate reality: bring the future into the present. This is done using a novel instrument that has repeatedly proven to be powerful in estimating future outcomes: a prediction market. Specifically, one where participants place bets on future climate effects.
The study’s results show that when people bet money on climate outcomes, they gradually shift their beliefs on climate change; they become more concerned about the risks of climate change, more supportive of remedial action, and more knowledgeable about the impact of climate change.
The research provides a practical way to increase people’s concern about climate change, as well as a powerful tool for policymakers to poll public opinion about climate issues, test potential future policies, inject private money to a new financial instrument, and even use potential market gains toward climate solutions.
“An underlying reason why climate change skepticism remains intractable is that humans often have a hard time thinking about future events and recognizing their consequences,” said Academic Director in Executive Education, Moran Cerf. “But our research shows that when people encounter a present-day monetary cost for holding false beliefs about the future, even entrenched perceptions can begin to move. Prediction markets are a proven tool to change views on climate change and finding a way to scale them has the potential to make a recognizable impact for society.”
The study, Participating in a Climate Prediction Market Increases Concern about Global Warming, published in Nature Climate Change, is authored by Columbia Business School's Academic Director in Executive Education Moran Cerf and Professor Sandra Matz, the David W. Zalaznick Associate Professor of Business, and Northwestern University’s McCormick School of Engineering Professor Malcolm MacIver, and was completed with the support of funding from Columbia Business School’s Tamer Center for Social Enterprise. The researchers implemented two studies involving over 1,000 participants. Ahead of participation in the prediction market, participants were pre-screened with a survey for their views on climate change. Participants received $20 and were randomly assigned to one of two prediction markets – a climate change-focused market or a non-climate market (i.e., sports and entertainment). Over the course of several weeks, participants were invited to engage with various future bets such as, “Will the global average CO2 levels in the Earth’s atmosphere exceed 417.6 parts per million between August 5-9, 2022?” Participants were given the chance to wager their money on the outcome, gaining additional income for every correct prediction and losing income for every incorrect one. Throughout the study, participants could view their own betting profile (amount won thus far, number of bets placed) and could learn about the outcomes of previous bets. Following completion of the market, participants completed post-market surveys on their views. Similar to the way by which investors in stocks become more alert to events related to the stock (i.e., announcements by the company, or drastic changes), the study participants became more attuned to climate events and were more likely to accept new information that challenged their views on climate issues as reality was manifested throughout the betting period.
The studies’ findings demonstrate that those participants who placed bets on climate-related events were more likely to shift their climate concern, support for remedial action, and knowledge of climate change throughout the betting period (compared to control participants who did not place bets on climate events). Notably, the effects appeared across the entire political spectrum, suggesting the participation in a climate prediction market can shift beliefs about climate change irrespective of people’s ideologically motivated positions. This might in part be the case because prediction markets afford an anonymous expression of opinion, allowing participants to critically think on their own and free themselves from the influence of their social and political groups. Overall, the study suggests that climate prediction markets – if they can be scaled, potentially by government intervention – could be a powerful tool to shift public opinion on climate change.
“This study offers empirical evidence for the ability of prediction markets to change people’s attitudes about climate change,” said Columbia Business School Professor Sandra Matz. “The engagement with climate prediction markets in a domain that is quantitative and less polarizing than politics could not only change climate concerns but also act as an ultimate tool to help scientists, activists, and politicians aggregate public opinion about trends, policy preferences, and future scientific predictions. The research shows promise for the use of prediction markets in other areas of controversy where an agreed-upon arbiter of truth could allow individuals to reflect their views through market economics rather than publicly stated opinions.”
“At its extreme condition, the market could truly act as an ideal ‘win-win’ tool for climate science,” Academic Director Cerf said. “I can take a bet about a future hazardous climate outcome against a climate denier. If I am right, I can use the earnings, at scale, to mitigate some of the climate risk. If I lose because all climate scientists were actually all wrong and climate change is not happening – that is a wonderful outcome as well. I am happy to lose money in such a bet and learn that the world is not coming to an end.”
To learn more about the cutting-edge research being conducted at Columbia Business School, please visit business.columbia.edu.