Behavioral Economics has revolutionized our understanding of decision making.
We now know that humans are far from perfectly rational. Instead, there are psychological biases that strongly influence people’s choices.
The result is a more accurate prediction of human behavior, which can facilitate desirable business outcomes.
Once you understand the drivers of behavior, you can change behavior.
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How to convince your boss to use insights and strategies from Behavioral Economics
1. 1
How to Convince Your Boss
to use insights & strategies from
Behavioral Economics
2. 2
Imagine yourself as…
The VP of an
international fashion
retailer, trying to boost
your company’s sales.
A member of the
American Transplant
Foundation advisory
board, struggling with
low consent for organ
donation.
A Human Resource
Officer of a major
corporation, trying to
increase employees’
401(k) participation.
…what do you do?
4. 4
The HR officer
typically
encourages
retirement
advisors to market
pension plans by
explaining the
rational benefits
of savings.
The marketing
executive often
resorts to sales
campaigns and
steep discounts.
The health care
advocate often
relies on people
choosing to enrol
in organ donation
programs.
6. 6
Steep discounts
tarnish consumers’ perception
of brand quality and image.
INSIGHT: Lower prices don’t
necessarily lead to more purchases
Hardesty, D. M., & Bearden, W. O. (2003). Consumer evaluations of different promotion types and price presentations: the moderating role of
promotional benefit level. Journal of Retailing, 79(1), 17-25.
Yoo, B., Donthu, N., & Lee, S. (2000). An examination of selected marketing mix elements and brand equity. Journal of the Academy of Marketing
Science,28(2), 195-211
7. 7
Few people choose to participate in
organ donation programs… almost
every hour an American dies while
waiting for an organ donation.
INSIGHT: Relying on people to actively
enroll doesn’t necessarily mean they will
US Department of Health & Human Services. Available at: http://www.organdonor.gov/about/data.html. Accessed August 25, 2015.
8. 8
68% of Americans aren’t
saving for retirement.
INSIGHT: Even when an action is in their best
interest, people don’t always follow through
Ghilarducci, T., Saad-Lessler, J., & Bahn, K. (2015). Are Us Workers Ready for Retirement? Trends in Plan Sponsorship, Participation, and
Preparedness. Journal of Pension Benefits, Ferenczy Benefits Law Center, 25-39.
10. 10
But THEY AREN’T
Because decision-makers assume people
are rational.
Once you understand
the drivers of behavior,
you can change
behavior.
11. 11
What should be done?
“Our problem is not ignorance,
but pre-conceived ideas”
Hans Rosling
Rosling, Hans. "Debunking Myths about the World." HANS ROSLING, June 18, 2007. Web. Accessed August 25, 2015.
<http://roslingsblogger.blogspot.ca/2007/06/debunking-myths-about-world.html>.
13. 13
Behavioral
Economics
Behavioral Economics has revolutionized
our understanding of decision making.
We now know that humans are far from
perfectly rational. Instead, there are
psychological biases that strongly
influence people’s choices.
The result is a more accurate prediction
of human behavior, which can facilitate
desirable business outcomes.
15. 15
What BE Tells Us:
• Scarcity Effect: People
are attracted to things
that are hard to obtain
Real-World Application:
• Retailers like Zara
maintain quick
merchandize turnover,
with few or no re-orders
• Customers know that if
they don’t buy the item
they like, it might be
gone tomorrow
Behavioral Economics
Solutions in Retail
Lynn, M. (1991). Scarcity effects on value: A quantitative review of the commodity theory literature. Psychology & Marketing, 8(1), 43-57.
Ghemawat, P., Nueno, J. L., & Dailey, M. (2003). ZARA: Fast fashion(pp. 1-35). Boston, MA: Harvard Business School.
16. 16
High Merchandise Turnover:
• Zara’s stores are re-stocked with new
designs twice a week
• Inditex (Zara’s owner) has thrived in the
current retail environment and is now
the biggest fashion group in the world
REAL-WORLD RESULTS
2013 Annual Report, Inditex Group
17. 17
What BE Tells Us:
• Status-Quo Bias: The
status-quo is taken as a
reference point and any
change from that baseline
is perceived negatively
Real-World Application:
• To improve organ and tissue
donation, Wales has decided to
introduce a soft opt-out system
• Starting December 2015,
people will have to deviate from
the “baseline” and “opt-out” of
organ donation, instead of
being given the choice to opt-in
Behavioral Economics
Solutions in Healthcare
Kahneman, D., Knetsch, J. L., & Thaler, R. H. (1991). Anomalies: The endowment effect, loss aversion, and status quo bias. The journal of economic
perspectives, 193-206.
(November 2013). Organ donation in Wales: putting the new law into practice. http://organdonationwales.org/News/news2611?lang=en
18. 18
Countries where people
are defaulted into not
being organ donors
Check here if you would
like to be an organ donor
Countries where people
are defaulted into being
organ donors
Check here if you would not
like to be an organ donor
REAL-WORLD RESULTS
Johnson, E. J., & Goldstein, D. G. (2003). Do defaults save lives?.Science, 302, 1338-1339.
0.#
25.#
50.#
75.#
100.#
Denmark#
Germany#
UK#
Netherlands#
Sweden#
Belgium#
Poland#
Portugal#
France#
Hungary#
Austria##
Share#of#designated#organ#donors13#Share of designated organ donors
19. What BE Tells Us: Real-World Application:
• Loss Aversion: People are
very reluctant to forego even a
small part of their immediate
income
• Hyperbolic Discounting:
People have a tendency to
underestimate future earnings
Save More Tomorrow Program:
• Employees commit to contribute
more to their 401(k) plans, but
only once their salaries have
been raised
• This program allows employees
to continue enjoying the same
level of disposable income they
are used to
Behavioral Economics
Solutions in Retirement
Tversky, A., & Kahneman, D. (1991). Loss aversion in riskless choice: A reference-dependent model. The quarterly journal of economics, 1039-1061.
Laibson, D. (1997). Golden eggs and hyperbolic discounting. The Quarterly Journal of Economics, 443-477.
19
20. 20
Within 3 years of
introducing the Save
More Tomorrow
(SMarT) pension plan,
employees who joined
SMarT saved almost
twice as much as
employees who
declined SMarT
Save More Tomorrow Pension Plan:
REAL-WORLD RESULTS
Thaler, R. H., & Benartzi, S. (2004). Save More Tomorrow: Using Behavioral Economics to Increase Employee Saving. Journal of political
Economy, 112(S1), S164-S187.
6.3 6.2 6.16.5
9.4
11.6
Year 1 Year 2 Year 3
Pension savings as share of monthly salary
Declined SMarT
Joined SMarT
21. 21
Scarcity Effect,
Status-Quo Bias, and
Loss Aversion are just a
few of the hidden biases
that rule our behavior.
For a brief introduction to
some other human
heuristics and biases,
explore
http://ConceptTree.BEworks.com/
22. 22
Taking special care not to give
any advice that they cannot
justify, behavioral experts are
minimizers of risks.
Behavioral experts do not make
decisions based on “hunches” or
“gut feelings.” BE practitioners
formulate concrete and testable
assumptions to be examined
under the rigorous lens of
empirical verification.
23. 23
How to Convince Your Boss
to Leverage Behavioral Economics
Explain that the Benefits of BE include:
• Enabling Innovation and implementations of
empirically validated strategies
• Mitigating Risk by safely pre-testing new
business ideas
• Challenging of Assumptions that are no more
than “hunches” or “gut feelings”
• Democratizing Ideas by subjecting all opinions
to the same verification standards
• Unleashing Creativity and Curiosity through a
systematic approach to new ideas and testing
• Leveraging Cutting-Edge Scientific Insights
24. 24
Our mandate at BEworks is
to design controlled
experiments so that business
leaders do not have to rely
on anecdotal, historical, and
correlational evidence.
Dan Ariely
Co-Founder &
Chief Behavioral Scientist, BEworks
Professor, Duke University
Best-selling author
25. 25
You’re on your way to advancing
your business through the
BEworks Approach!
info@BEworks.com
www.BEworks.com
(+1) 416-920-1921
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