that influence how we make decisions
about sustainability and many other
aspects of life. The rational view, as
typically espoused in economics, takes
two perspectives: humans are entirely
motivated by narrow self-interest and
the pursuit of utility maximization6;
and firms should focus exclusively
on maximizing shareholder wealth. 1
Individual rationality, however, does
not always lead to collective rationality. The tragedy of the commons4 and
the paradox of thrift8 illustrate how
individual self-interest can lead to the
depletion of a community resource
and how individual austerity in times
of recession exacerbates the problem,
respectively. Social forces, such as the
desire to build long-term relationships, dampen self-interest. 5 Social
constraints and interventions, such as
culture, laws, and ethical codes, can
rein in naked self-interest to create
outcomes that are more attuned to the
collective interest.
the Role of information in
Rational and social Behavior
The economic organization of current
society predominantly reflects the operation of self-interest. By the late 20th
century, most countries had decided
that the allocation of many scarce resources, a fundamental economic
problem, should be assigned to prices,
markets, and free enterprise. The global economy largely operates through
prices, particularly for commodities
(such as coal and iron), which are major factors in the price of nearly all consumer products and services. From a
sustainability and societal perspective,
prices are not always an effective signal
because of the presence of externalities, which represent costs absorbed
by society rather than the producer. For
example, the costs of CO2 emissions
of coal-fired power stations are borne
by everyone, irrespective of how much
electricity they consume. When society allows this externalization of such
costs, markets and self-interest work
against sustainability, 3 which is why
some advocate internalization of externalities. 9 Thus, the economic system
would better serve the greater social
good if prices were aligned with sustainability goals.
At present, we do not have in place
data streams and associated informa-
many people
want to maintain
a sustainable
lifestyle, but
they do not
know how.
tion systems that economists and legislators could use for setting fees and
establishing regulations and social
interventions to ensure that prices
reflect externalities. One solution is
extensive sensor networks for recording the location and characteristics of
pollution. Then we would have the raw
material for accurate pricing. Thus, a
first imperative for the profession is
to: Create information systems and networks that provide the capacity to incorporate significant environmental costs
into prices.
This pricing perspective favors one
view of how to transition to an environ-
mentally sustainable society. Treating
people and organizations as autono-
mous maximizing utilitarians, how-
ever, fails to recognize that our innate
social nature and non-economic pri-
orities greatly influence our decisions,
needs, and behaviors, and that we are
strongly influenced by others. Behav-
ioral economics addresses some of
the shortcomings of traditional indi-
vidual self-interest oriented economic
analysis. Solutions to sustainability,
particularly information-driven strat-
egies, need to also consider our social
side. Our environment is the result of
what we consume now and in the fu-
ture. Hence, societal transition ulti-
mately hinges on consumers—as indi-
viduals and organizations—changing
their consumption patterns for the
greater good of the environment and
not just because of a product’s price.
Many organizations and individuals
have a positive attitude toward the en-
vironment and seek to make sustain-
able choices, yet it is often difficult for
them to follow these beliefs because
they lack information about the en-
vironmental consequences of those
decisions. Information, which helps
to form perceptions, is critical to the
functioning of our social as well as ra-
tional side. Three streams of informa-
tion can influence perceptions about
sustainability: organizational sustain-
ability reporting, product informa-
tion, and feedback on individual envi-
ronmental impact.
