Behavioral Insights for Managing Environmental Decisions: An Experimental Test of Prospect Theory

Abstract

This research integrates a behavioral management perspective with experimental methods to examine how public workers in an environmental protection agency form beliefs. Study 1 uses conjoint experiments to assess employee perceptions of companies violating (1a) or adhering to (1b) environmental regulations. While crime discovery probability and administrative burdens have consistent effects, the importance of economic gains versus losses reverses in negative versus positive frames, and social norms impact violations but not compliance. Study 2a shows employees' risk aversion with gains and risk-seeking with losses. Study 2b reveals a zero-risk bias, with many irrationally preferring full elimination in one area over greater overall reduction. We discuss theoretical implications and emphasize practical contributions. Specifically, monetary incentives and punishments, as well as social influences, appear effective in discouraging norm violations but not in encouraging compliance. To serve both ends, environmental agencies and their managers can rely on oversight and reductions in administrative burdens.