Valuing rewards and punishments for Prius and Hummer drivers

One of behavioral economics’ seminal insights is that people value gains differently than losses. Most of us are loss averse, which means we prefer to avoid a loss more than we enjoy the satisfaction of a seemingly equivalent gain (ie. losing $100 hurts more than winning $100 despite the identical value of the money involved). Economists who have tried to measure loss aversion have found that the odds of equivalent pain to pleasure are approximately 2:1. People will work to avoid losing $50 about as hard as they will to earn $100.

With that ratio in mind, a new survey from the Mineta Transportation Institute in San Jose, California, that asked California citizens about their preferences for “green” vehicle fees for different types of cars revealed the following finding:

Californians similarly supported another green transportation finance option – a new tax-and-rebate system on all new vehicles based on how much they pollute. People who buy a new vehicle that pollutes very little would receive a rebate of up to $1,000, and people who buy a vehicle that pollutes more would pay a tax up to $2,000. People who buy a vehicle that pollutes about the average amount would not pay a fee or receive a rebate. Sixty-five percent of respondents supported this proposal, and only 30 percent opposed it.

Continue reading the post here.

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