Behavioural economics, nudge, and business change management
You may have heard the news that Richard Thaler has won this year’s Nobel Prize for Economics for his work on behavioural economics.
I have been promising a blog post on behavioural economics for a while, so now seems like the perfect time.
What is behavioural economics?
Basically, it looks at how psychology shapes our behaviour and decision making. Richard Thaler began life as a traditional economist and soon realised there was something wrong with the basic assumptions used in the profession, namely:
- People are ‘rational actors’. They always make decisions based on logic.
- People always seek out and understand all the information available before making a decision.
- People always make decisions based on what is best for themselves.
Behavioural economics proves that these three assumptions are incorrect. It also attempts to discover what other, psychological, factors influence how people make decisions.
Why is this interesting for business change management?
As I have written previously, encouraging people to make decisions is a large part of our work as business change managers. We support everyone involved, from senior leaders deciding how to shape the change, to end users deciding to change their ways of working.
We have all experienced stakeholders who do not make rational decisions. Behavioural economics is coming up with new evidence of what psychological factors influence decision making, including:
- who communicates the information
- what others are doing
- the available incentives (not necessary financial)
- any sub-conscious cues which are present
- the defaults or ‘pre-set’ options
Using these factors to influence behaviours is called nudging, hence the name of Thaler and Sunstein’s excellent book, Nudge. It is well worth a read and gives lots of ideas of how to nudge people into making better decisions. Many of these ideas can easily be translated into our work.
Nudging people to change
Some examples of nudging which could be useful for us as business change managers include:
Wording communications to focus on the number of people already behaving in the desired ways.
Most people can be nudged to behave a certain way if they know their colleagues have already chosen to do so.
For example, HMRC increased the amount of people who paid their income tax on time by replacing the sentence “Nine out of 10 people in the UK pay their tax on time” with “The great majority of people in [the taxpayer’s local area] pay their tax on time”.
Therefore, try focussing your comms on how many people are already exhibiting desired behaviours or have adopted the change successfully to help nudge more reluctant stakeholders to come on board.
Changing default options so that people have to opt out of behaving in a certain way rather than opting in.
The vast majority of people will choose a default option so see if you can pre-set options into your change to encourage desired behaviours.
The recent introduction of auto enrolment in workplace pensions is a great example of a default nudge. Not enough people were opting into their workplace pension scheme, despite understanding the need to save for retirement. Workers are now automatically enrolled into a pension and given the option to opt out. The government is hoping to significantly increase the amount of workers saving towards their retirement through this nudge.
Could you build pre-set options into any technology changes to nudge stakeholders towards desired behaviours? For example, making the printer default print double sided and black and white may help nudge people into saving more paper and ink.
Getting public commitment to behave in a certain way can significantly increase behaviour change.
For example, if you declare you are going to lose 5kg to your local Weight Watchers group, you significantly increase your chances of doing so.
I used public commitment to nudge people during a change to improve how they managed their information. Teams were given a list of eight simple behaviours they could change, e.g. deleting unnecessary emails. The teams publicly committed to focus on changing one behaviour for six weeks. After this time, the majority of the teams had successfully changed their behaviour. They were also much more enthusiastic about what other changes they could make.
What do I do next?
Nudge has many more great examples which may help you to build some nudges into your change initiatives.
MINDSPACE is a behavioural change method developed by the UK government’s Behavioural Insights Team (better known as the Nudge Unit). It also has plenty of practical examples of how to use nudges to encourage behavioural change.
If anyone is interested in finding out more about behavioural economics and are within travelling distance of London, there is a monthly Behavioural Economics Meetup which discusses latest developments in the field.
Have you successfully used nudging in your change initiatives? If so, why not share your examples with our business change community through the comment box below.