As change practitioners there's a lot of value in understanding a little about the fascinating field of Behavioural Economics. Behavioural Economics differs from classic Economics in a number of ways. Classic Economics assumes that humans will always make logical and rational decisions, while Behavioural Economics understands that in practice, we rarely do. The better we understand human nature, the more effective we can be when driving change.
Any male who's been through Schiphol Airport in Amsterdam with a full bladder will have noticed the flies painted on the urinals. Typically crazy Dutch or a wee bit of genius? Well, by painting realistic flies in the centre of the urinals, 'spillage' was reduced by 80% - a significantly higher success rate than other previously deployed methods had achieved.
The objective was to improve efficiency and improve customer experience. This was achieved not by telling travellers what to do, but by understanding and working with human nature; see a fly and a man will aim...
Another compelling experiment demonstrates how you can get people to eat more healthily, without any lecturing or hectoring. Place a table in a public area with two equally sized plates of food, one brimming with pastries and the other with fresh fruit. Add a sign in the middle saying 'Free Food'. In repeated tests, the pastries disappeared at twice the rate of the fruit.
However, if you put a mirror behind the table, the fruit will suddenly disappear at twice the rate of the pastries. Why? The simple fact that you can see yourself, and are aware of your body image, subtly encourages people to choose the fruit.
These are examples of 'Nudge Theory', an interesting subset of Behavioural Economics. One of the key principles of Nudge is that there must be no economic incentive involved in influencing the decision - it's all about 'Choice Architecture' and how you present people with options that make the best decision their natural preference.
When it comes to change practitioners it helps to understand that part of people's natural resistance to change stems from 'Loss Aversion'. 'Loss Aversion' is part of 'Prospect Theory', which shows how losses loom larger than gains. This is just one of the behavioural economic theories introduced by Nobel Prize winner, Daniel Kahneman. In short, it poses that you'll need to make the benefits of the change at least twice as attractive as the negatives to get maximum buy-in.
There's a wealth of interesting literature on Behavioural Economics, but to date, few have managed to put it into practice in business. This seems strange and is surely set to change given there are so many powerful and applicable lessons to learn, including:
• The importance of 'cognitive ease' when presenting information
• The power of priming effects and the value of broad, rather than narrow, framing
• How pre-mortem planning improves accuracy and predictability of planning efforts
• The prevalence of 'Availability Bias' and 'Confirmation Bias' and why they need to be catered for in change communications
• Why 'bad' is always stronger than 'good' and why poor impressions and stereotypes are quicker to form and more resistant to disconfirmation
• Social proof - the reality that humans are herd animals at heart, and are heavily influenced by 'what others do'
• How 'Anchoring' works and can make a huge impact on negotiation
• How setting defaults helps render choices less avoidable and easier to make.
Of practical and immediate use for us all are trend bucking facts such as:
The best way of eliciting information from a group is not to start with a group discussion but rather by confidentially collecting each person's judgement.
As Change professionals we need to appreciate that people's unwillingness to deduce the particular from the general is matched only by their willingness to infer the general from the particular.
How many times have you heard a senior stakeholder base decisions and direction on their personal, often subjective experience instead of on objective data and a broad frame of reference? This is classic 'Availability Bias,' and understanding it goes some way to countering it.
It benefits everyone to understand that the world in our heads doesn't automatically represent reality. Our expectations, understanding and perception of the world around us are all distorted by the prevalence and emotional intensity of the messages to which we are exposed.
Behavioural Economics teaches us to think hard about the best way to present choices, to work with rather than against natural behaviour, and to anticipate the natural biases and irrationality that make us human.
We'd love to hear from anyone interested in Behavioural Economics, especially anyone who's successfully applied it to change initiatives. Feel free to contact email@example.com and join our LinkedIn Big Change Group.