A nudge, as we use the term, is any aspect of the choice architecture that alters people’s behavior in a predictable way without forbidding any options or significantly changing their economic incentives.
This quote by Richard Thaler, who was awarded with Nobel Memorial Prize for his contributions to behavioral economics, elucidates nudge theory and has brought the worlds focus on behavioral economics.
The emergence of the concept of behavioral economics has brought a revolutionary change. Behavioral economics, in brief, is an amalgamation of the concepts of behavioral science or psychology and economics to dig into, “Why we make decisions we do?” What it basically explains is that, even though we are considered as the logical beings, but we often fail to make rational decisions.
There are majorly three themes of behavioral economics, which have the roots in the deep research. These reveal the facts about how people actually behave, which is majorly irrational. The three themes are as follows –
According to the traditional economic thinking, humans make decisions by gathering all the available data and analyzing it with respect to their own need. Latterly, they decide based on cost and benefit analysis. But in reality, this is far from true. Humans are found to be more emotional than rational. The decisions they make are rather intuitive than based on analysis. Even the people in professions like medicine, law, writing and human resources rely on intuition (which Daniel Kahneman tags as “thinking fast”), rather than focusing on data (“thinking slow”) to make complex decision making.
Will Power –
Ideally rational economic actors who are tagged as “econs” have perfect will power. They do not let their short term goals become an impediment to their long term goals. But this is not the case in reality. Humans are full of imperfections and are often fickle minded. This is to say that people fall short of will power and fail to make a better decision. Also, given rising dynamics on both personal and professional front, it is increasingly becoming difficult for people to take decisions based on their will power.
Generally, econs are expected to work for economic self-interest. If someone works for extra-hours, it is chiefly because he/she expects a reward for it or perhaps is afraid of the consequences of denial. But in reality, the factors are beyond this. There are other deep-rooted factors like professional pride, fairness; commitment and societal responsibility based on the mindset of the worker also come into the picture. Also, the source of motivation differs from person to person and this becomes an important factor to tap on.
The corporate world is growing rapidly. Almost all the departments of organizations are looking to upgrade and use the cutting edge techniques to improve the quality of work. In such an era, it is time for HR department to shun the outdated techniques, reinvent itself and use latest techniques to handle the most important part of the organization, which is its manpower.
When it comes to hire the right candidate, motivate the employees and help workers to make better choices, the behavioral insights can lead to new strategies for HR.
Behavioral economics offers insights about “choice architecture”, and helps the workforce make better decisions. This is done by offering constrained set of choices to the workforce that leads to a better decision.
There is a lot that HR management can learn from the nudge theory. It is executed by giving people “nudges” that encourage them to do the right thing rather than by conducting an official sermon or orating homiletic speeches to lead them towards proper direction. Nudging enormously helps in creating new and better habits in the workforce. The very fact that these nudges are so subtle helps them to inculcate a better working culture.
How can HR leverage behavioral economics?
People experience a lot of cognitive biases in the process of decision making. Here are some of the cognitions discovered by psychology researchers around the globe that can be used by HR for better understanding of the organization’s manpower to reinvent strategies and derive optimum results out of them –
Loss aversion – This is based on the fact that people feel twice as much pain on losing something than gaining it. HR management should look to avoid giving extravagant privileges to the employees, so that they don’t have to snatch those back at some point of time. Reducing the benefits later would double the pain and thus reduce the motivation and productivity. So, think long and do only that is sustainable.
Status quo bias – This digs into the fact that people prefer to keep the things as it is rather that yearning for changing them. The inertia for change is inherent in all human beings. Too many changes and fluidity in an organization can also have adverse effect. HR management should look to pre-enroll the retirement policies or healthcare plans and other such policies, and leave it on the employees to make changes.
Reciprocity – People tend to favor people who favor them as a gesture of reciprocation. HR management can look to be generous, give small gifts to employees and praise them on occasions. It develops a sense of well-being in the organization and increases the productivity as such gestures make the employees to be nice in return. Laying down proper appreciation of recognition policies go a long way in developing a healthy symbiotic work environment.
Choice overload – This is based on the well-known principle of “less is more”. People often get confused with too many choices and get tired and frustrated. Contrary to popular belief fueled by ecommerce portals, people feel far more comfortable in choosing out of few options, then be flooded with choices. Employee should be given fewer options to choose from. The forms, processes and online procedures they are supposed to execute on regular basis should be optimized accordingly.
People work in hectic schedules with so many tasks to execute and humongous amount of data and information to process. In this scenario, workforce has less time to think and even lesser time to process a decision. This is where the concept of behavioral economics can be leveraged to smoothen out their operational processes. By doing so, employees would be left with limited choices, better nudges and more recommendations. This would lead to a better choice architecture; enhance productivity and innovation in the organization.