It’s easier to nudge than issue commands

Behavioural economics moves from academia to the boardroom

What do Google, the White House, and Whitehall have in common?

At least one thing: they’ve all made the pivot toward behavioural economics. And it’s easy to see why.

Google has used behavioural principles to improve the dietary decisions of its employees within its cafeterias, netting a reduction in the company’s health-related costs. Federal agencies under the Obama administration are now required to consider how to draw upon behavioural economics to boost their policies and programs. Meanwhile, the UK government’s Behavioural Insights Team, dubbed the ‘Nudge Unit’, has been busy trialling behavioural strategies in policymaking to influence behaviours for the public good.  

Behavioural economics has clearly done something right. By coupling psychology with neoclassical economics, it has produced insights to help unlock why we make the decisions we do (note 1 and note 2). This has catapulted the field beyond the halls of academia into the policymaking scene, and made it a permanent fixture in the media.

So how can executives use these insights?

In our recent interview with Professor Ivo Vlaev, a foremost expert in behavioural economics, he offered an answer.

Along with colleagues, Vlaev has devised a handy framework called MINDSPACE, which business leaders can use to stress-test the soundness of their decisions.

Understanding our own as well as other people’s natural tendencies is the first, if not the most important, step in influencing behaviours. MINDSPACE helps business leaders quickly figure that out by collecting together the nine most powerful behavioural triggers that can sway human decisions.

Here’s two examples: 

  1. Marketing: when retailers publicise depleting stock levels to create a sense of urgency - ‘hurry only 2 items left!’ – they tap into customers’ natural aversion toward losses (i.e., ‘incentives’ - the ‘I’ in MINDSPACE).
  2. HR departments can produce a contagion effect across the business when they fully promote and praise exemplary behaviours. HR practitioners, in other words, are embedding organisational ‘norms’ (i.e., the ‘N’ in MINDSPACE), the notion that we’re greatly influenced by what others do. This rests on the insight that rather than try to enforce best practices within teams, emulation may actually yield better results. 

In the short-run, the MINDSPACE checklist gives executives an immediate steer on which behavioural biases are in play within a specific context – which they can then address.

In the long-run, having this informed view of the underlying dynamics of human decision-making provides the basis for a more robust approach to strategic decision-making, resulting in better quality outcomes.

For firms, raising the bar for decision-making quality has become all the more crucial in an era of rapid technological changes and high volatility in the global economy.

We believe if executives use behavioural tools like MINDSPACE to strengthen their strategic decision-making, many other lower-order decisions could be automated.

Notes and Bibliography

  1. Some books that provide a good entry-point into the key concepts of behavioural economics: ‘Thinking, fast and slow’, New York: Farrar, Straus and Giroux, Daniel Kahneman, 2011;
  2. ‘Nudge: improving decisions about health, wealth, and happiness’, New Haven, Connecticut: Yale University Press, Richard H Thaler and Cass R Sunstein, 2008.
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