Re-thinking cost-benefit evaluation for sustainability: A prospect theory perspective on choice and decision making for solar water heating in Southern Africa

Gichia, Stanley Kiiru Irungu
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This study applies empirical case-study data and theoretically-guided analyses to forge a link between CBA evaluation and sustainability paradigm with prospect theory, behavioural economics and neuro-economics. This link is applied to explain the contradictory scenario where solar water heating failed to emerge as a preferred water-heating technology in South Africa compared to electric geysers before the 2006-2008 electricity crisis, only to suddenly emerge into high market-visibility after the onset of the crisis. The core argument of the study is that CBA evaluation, sustainability assessment and emerging assessment tools are premised on the rational-agent model and revealed-preference assumptions of choice and decision making whose empirical merits are growing increasingly weak. Instead, choice and decision making is increasingly being understood to be guided by a combination of irrational or boundedly rational heuristics (System-2) and emotion-guided biological (System-1) mechanisms. Primary data from face-to-face interviews and electronic communication, as well as secondary data from previously commissioned reports, media articles and reports related to decision making patterns were collected and analysed. Literature review was used towards the theoretical contextualisation of the study. The key findings indicate that choice and decision making in the solar water heating sector and projects is characterised by informally sensed/assessed economic/financial gains or loss (with initial cost commitment, operational cost-saving and payback period as key salient/reference points) where the immediate-benefit logic and self-preservation are the key drivers. In contrast, environmental, collective and long-term benefits such as intra- and inter-generational equity are systematically dis-counted (underweighted and thus not salient) as choice and decision reference points. Choice and decision making is thus primarily based on attitudes, perceptions and mental accounting, rather than empirical evaluations and objective calculations. One of the key insights is that it was a System-1 driven nudge (provoked by electricity crisis and subsequent cost-escalation) which triggered a significant shift in choice and decision making, which in turn produced significant changes in favour of solar water heating where close to two decades of rational-agent and objectivist-oriented interventions hardly achieved any impact. The findings suggest that expectations of achieving sustainability transitions purely through rational and objective choice procedures are most likely misplaced. 1 The study concludes that rational-agent-based choice and decision making tools such as CBA evaluation and sustainability assessment methods most likely fail to trigger the level of emotions and feelings which can evoke a shift in attitudes and perceptions, which would effect a shift towards sustainable lifestyles. The findings suggest that facts do not always speak for themselves, especially when confronted with subconsciously-driven and emotions-informed motivators. Significantly also, the study concludes that money/finance seems to have evolved into a critical biological mediator whose significance has not been fully appreciated or empirically studied in sustainability science. The study also concludes that both CBA evaluation and sustainability assessment methods should go beyond the rational-agent paradigm and engage with prospect theory behavioural heuristics and neuro-economics mechanisms that catalyse change in order to achieve the required transition. Framing and nudging approaches for sustainability transitions thus emerge as critical new fields for future investigation.