Behavioral economics is a term that is increasingly entering the lexicon of the world at work. Last October, renowned behavioral economist Richard Thaler won the Nobel Memorial Prize in Economic Sciences for the research in his book “Nudge,” about how subtle policy or system shifts can influence individual decision making on a broad scale – in government, in the economy, and in the workplace.
Behavioral economics is about understanding the true nature of human behavior and decision-making. Human beings are not always driven by rational self-interest. In fact, much of human behavior and decision-making is actually irrational. But irrational does not mean unpredictable, allowing behavioral economists to anticipate human reactions in order to structure more productive interactions. When BE strategies are used at work, they can help leaders anticipate what truly matters in helping employees feel more engaged, thereby better serving the organization’s mission and the employee experience.
Sound familiar? To an HR professional, it should. Most likely, you’ve been implicitly employing behavioral economic strategies since the beginning of your career even if you’re unfamiliar with the terminology.
In fact, there is one area HR professionals have historically deployed what can only be considered behavioral economics intervention: the structured interview. The structured interview was created to help interviewers overcome biases in hiring decisions, which has been critical in developing diverse and successful teams. Behavioral economics and human resources have always gone hand-in-hand because they’re both people-centered. Given its rising notoriety within business, it’s likely we’ll see a BE “boom” within the next few years in the HR space.
While early BE-influenced strategies like the structured interview have generated positive results for improving hiring decisions, as we dive further into the digital age, technology is becoming increasingly important for how we build and deliver tactics designed to shift behavior. As work becomes more digitized, automated, and connected, HR leaders will need to use technology to deploy behavioral economic strategies aimed at optimizing employee engagement, structuring learning and development programs, and improving performance appraisals.
Here are some ways behavioral economics is influencing the future of work, and how HR leaders can utilize technology to help deploy its strategies.
The Team Leader 2.0: Assisted by Technology
Let’s consider the technique of “priming” and how it can be used to make managers more aware of the needs of their teams. Priming is based on the principle that the more frequently a person experiences an idea or concept, the more often she will find opportunities to act upon that concept in day-to-day life. Leveraging flexible and customizable technology platforms like e-mail can enable interventions – nudges – to prime team leaders to pay more attention to the needs of their people. For example, the ADP® talent activation solution, Compass℠, assesses the leader-team dynamic to determine which fundamental team needs require the most attention. It then provides leaders with personalized email coaching. The emails always use keywords in the subject line in order to prime leaders on their area of their focus, such as “Recognition,” or “Development.” This is one way to prime managers: To remind them in small, frequent bursts to focus on that particular aspect of leadership. This type of coaching helps nudge team leaders to address team needs more proactively, and also serves as an example where technology can step in to help overloaded managers, who might otherwise place certain management responsibilities on the backburner.
Idiosyncratic Rater Effect, Recency Bias, and the Performance Review
Much like with the interview, managers enter performance evaluations with all sorts of rater biases. Some managers are notoriously harder (or easier) raters than others, which can skew the results across an organization. The bias of conflict avoidance can make it difficult for some managers to deliver constructive feedback, leading to inflated rankings. Perhaps the greatest challenge to performance reviews is “recency bias” in which managers are prone to evaluate the entire year based on whatever has been happening most recently. These challenges are significant, because if employees are being deployed, paid, and promoted based on these evaluations, companies should want them to be as objective as possible.
An equalizing behavioral economics tactic is based on the availability heuristic – ensuring managers have the most relevant and useful information in mind prior to providing ratings or entering performance evaluations. Technology can be a crucial tool in this regard. Data analysis can help identify the particular biases that drive a given manager’s ratings historically, and customize interventions around that, allowing HR leaders to provide digestible and tailored trainings. Technology can be used to provide snapshots of an employee’s entire year so that the manager does not succumb to recency bias. Then, the moment before a performance review is scheduled to start, an automated text message can be sent to the manager, reminding them of their training takeaways. Many experiments in social science demonstrate the significant impact of providing salient information at the right time to influence behavior.
Data-Discovered Holes, and the Tools to Patch Them
Many of the tools deployed by HR leaders appropriately have a fairly narrow focus. There are tools for goal-setting, recognition, team alignment, and many other aspects of leadership, engagement and productivity. Despite how well-designed these tools may be, HR practitioners inevitably run into challenges when introducing the tools into the company. One important reason – not everyone at the company needs them. (If your team is already great and setting and hitting goals, why would you want a new system to help you?)
The good news is, today, more data than ever is available at the fingertips of HR mangers to identify places for improvement for leaders, teams and individual employees. This allows for greater discretion in the targeted prescription of tools. The idea is to use targeted technology to provide the support that is both relevant and realistic for people – meeting them on their schedule, on their devices, in the ways that support their particular challenges.
The first step for HR leaders is to initiate data collection to gain understandings where the opportunities lie. This data offers an incredible advantage: Clarity around the actual challenges that need to be addressed, not just the theoretical ones. The second step: Disseminating that information and support to target and train leaders, teams and employees at specific interventions. This approach utilizes the behavioral economics principle of salience, by which the relevance of the intervention to a particular individual goes a long way in determining its impact.
Although incorporating behavioral economics into HR-related product-design and technology is still in its early stages, it’s important for HR leaders to begin thinking now about the place of BE strategies in the future of work. Right now, as a first step, HR leaders should begin to consider what technology platforms they use, and how their employees interact with and respond to those platforms. Deploying technology that is both designed for the end-user and anticipates the potential for irrationality of humans will become the technology most valued and used by your workforce, giving you an edge in the ongoing war to attract and retain top talent.
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