A Stern Review of Pascal's Wager

The Stern Review on the Economics of climate change has generated considerable controversy, not the least among economists. The way the model is calibrated, for example with respect to risk aversion, the discount rate or the way pollution translates into temperature changes. Having just read his Ely lecture, where Nicholas Stern addresses his critics, I come away unconvinced by either side, but still convinced about the crucial matter.

There is a risk, probably substantial, but maybe low, that there could be catastrophic consequences from climate change. If nothing happens, great. But if there is a risk, even if it is small, that we have rapid and important changes to climates and landscapes, we need to do something to prevent or slow them down. In a way, this is Pascal's Wager: doing something about climate change costs little compared to not having done anyhting and facing the catastrophic consequences. And it is not that clear to doing something about pollution is that costly anyway, in terms of quality of life.

PS: several papers have been published commenting on the Stern Review. You got to love this title: A Stern Reply to the Reply to the Review of the Stern Review.