Can rational be sustainable?

A while ago I was asked to speak at a nordic conference on the bioeconomy called Minding The Future which took place last week as a voice of a new generation. My first question was: what is the bioeconomy?

The bioeconomy comprises those parts of the economy that use renewable biological resources from land and sea – such as crops, forests, fish, animals and micro-organisms – to produce food, materials and energy

(European Commission)

In other words, the bioeconomy is the world around us and how we, humans, harvest it and use for our benefit. Our actions and decisions as consumers influence the impact we have on the bioeconomy and in the past few decades the western consumer behavior has become the sought after one and one that has an enormous ecological footprint. Something has to change in order to reverse that trend and in my talk at Minding the Future I wanted to look at how we can use our knowledge of consumer behavior as a tool for positive change.

Below is a video of the presentation as well as the text and slides for those interested:

 

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I´ve always been fascinated by people and why they choose to do what they do. As an economist who gets to work with early stage Startups and entrepreneurs at Icelandic Startups I have had the privilege to witness how knowledge about decision making can help startups succeed and change the world.

Every day we make hundreds, if not thousands of decisions – most small, based on habit, such as if you start by tying the shoelaces on the right or the left shoe when you go out – and others bigger, such as buying a car, leaving your job or selling your house.

According to modern economics, all of these decisions – every single one, big and small – is rational. We are all homo economicus – the rational human being.

Today, I want to explore with you what that rationality means and if rational can ever truly be sustainable.

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So, what does it mean to be the rational human being – homo economicus. Well, there are three things that it boils down to:

  1. More is always better
  1. If A > B > C then A is always > C, always in that order
  1. We have perfect information

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What do those three things mean. Well, number one means that two apples are always better than one apple

2 means that if you prefer apples to oranges and oranges to bananas, you prefer apples to bananas. It also means that faced with a choice between the three fruits you will always choose apples.

3 means that we know everything about the apples, oranges and bananas in the exchange. We also know everything about the way they were planted, who is selling them to us, the price of other substitutions such as pears or kiwis, the quality of all those things and the list goes on…

These three conditions describe the fully rational being. I don´t know about you but I´m not so sure that I can live up to those standards.

During the past few years I´ve looked for the homo economicus and the closest I have come to find it is my dog, Askja.

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In her mind, more is always better, going out for a walk is always better than dog candy which is always better than a pat.

Unfortunately, me and Askja don´t speak the same language so I can´t make sure she has perfect information about everything but I´m just taking that as a given.

In the past few decades we have come to realize that people are not fully rational in the economic sense but rather that we can only be boundedly rational, in other words – our rationality is limited.

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Part of what limits our rationality are heuristics and biases that are ingrained in our brains – actually there are quite a lot of them. As you can see some affect the way we store and remember things, some affect our judgement when we are under pressure or need to react fast while others come into play when we think we have too much information or we infer meaning where we should not.

Some of these heuristics and biases are commonly known, such as the sunk cost bias or the anchoring effect. All of these heuristics and biases affect our judgement subconsciously – they play a part in the fact that our choices stop being economically rational and become boundedly rational.

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So how does this tie into sustainability? Well, a big part of it is that a lot of these biases result in consumers overvaluing their own wellbeing as well as undervaluing the future as opposed to the present.

This has in part led to the consumption pattern responsible for the unsustainable lifestyle that most consumers in the western world live today.

However, with growing awareness for sustainability in every form and concern for our planet and future generations, understanding of these behavioural biases and heuristics can be a powerful tool for good.

Over the past three years I have been lucky enough through my job at Icelandic Startups to work with several dozen startups that all want to make their mark upon the world.

What working with startups has given me is a sense of optimism and amazement. Each and every one of the founders is trying to solve a problem for their users and through our business accelerators we help them grow and learn with the help of a network of valuable mentors, experienced entrepreneurs and investments from the accelerators´ corporate sponsors.

One of the projects we run at Icelandic Startups, Startup Energy Reykjavik is a business accelerator focused on energy related business ideas many of which reduce climate change and increase sustainability. Behind the accelerator are Landsvirkjun, Arion Bank, GEORG and the Innovation Center of Iceland and the program is facilitated by us at Icelandic Startups together with Iceland Geothermal. Through Startup Energy Reykjavik I´ve worked with startups that are facilitating infrastructure nets for electric vehicles to incentivice people to commute in a more sustainable way, a startup that recycles waste from aluminium plants to reduce pollution and increase value and right now we are running the 2016 accelerator and this year we have startups focused on reducing food waste and more.

Most of these startups are in some way or form aware of or utilizing the inherent flaws in peoples decision making that are the biases and heuristics we talked about earlier. I want to tell you about two companies, Jungle Bar and Platome Biotechnology that went through another business accelerator that we at Icelandic Startups run, this one jointly with Arion Bank, called Startup Reykjavik.

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The guys behind Jungle Bar want to normalize the act of eating insects in the western world. That is a big task but it is also an important one. The UN has encouraged the world´s population to look to insects as sources of nutrition in order to become more sustainable with regards to food intake and emphasize this in their goals for 2020.

This sounds all well and good but common … eating insects? That sounds pretty disgusting!

Almost all of us have been primed to think that insects are nasty and that we should demand a full refund if they ever happen to be found in our food. This is why the task of getting people to eat insects is a difficult one.

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Through a lot of research, customer feedback, prototyping and testing Jungle Bar, an insect powered protein bar was born. Everything about the product from the taste to the packaging and vague reference to insects is intended to carefully push people to taste their first insect based food.

The product, protein bars, is aimed at a customer segment looking for healthy, sustainable snacks and focuses on those qualities rather than drawing all the attention to the insects in it. This way people who are looking for tasty, healthy snacks happen to eat insects and realize that it´s not bad at all. They actually taste pretty good – sort of a nutty flavor.

The Jungle Bar team realized the inherent anchoring towards insect that most mainstream consumers in the western world and had to take that inherent bias into consideration when producing their first product which they successfully funded the first production of through Kickstarter and are now selling in several states in the US as well as other markets. Now they can build on the success of their first product to further incentivize people to start eating more insects.

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Platome Biotechnology produces nutritions which scientists use to grow stem cells and they participated in Startup Reykjavik this last summer.

Through extensive research in the field Platome offers scientists an animal free product that utilizes outdated blood from blood banks that otherwise would have to be disposed of. The nutrition scientists currently use to grow stem cells is gotten by killing and using blood from calve fetuses.

So not only is Platome´s solution cruelty free compared to current solutions but it also uses a resource that would otherwise go to waste. To me, exchanging Platome´s solution for the old ones makes perfect sense but the scientists already using the old product are set in their ways. In other words, they might suffer from anchoring, conservatism, confirmation bias and/or choice supportive bias.

So, for Platome Biotechnology, framing their solution from the viewpoint of their customer, the scientists and research centers will prove key to selling their product and enhancing the future of stem cell research in the world.

 

Jungle Bar and Platome Biotechnology are just a couple of examples of exciting new startups whose products are impacting and enhancing the bioeconomy.

A lot of new and exciting things are happening and will happen in the next years in biotech, foodtech and so many other industries that have the potential to have enormous positive impact on the bioeconomy. This conference and the talks we´ve heard here provide plenty of examples.

If we use the knowledge available about the way consumers think and make decision as a tool to empower those changes rather than letting them hamper progress we can dramatically increase our chance of creating a sustainable bioeconomy without having to go through the difficult process of getting people to change the way they already behave.

I believe that with incremental changes to consumer behavior we can make a big difference.

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