Category: Behavioral Economics

Posted on

What Is It Like to Work in a Nudge Unit?

This post is based on a question that was posed to me on Quora, What does it look like to work at the Behavioural Insights Team, or any other Nudge Unit?

If you are interested in nudging within the government context, I would check out the book by David Halpern, Inside the Nudge Unit, which essentially addresses the genesis of the Behavioral Insights Team in the UK and its approach to execution, which includes addressing problems one nudge at a time.

For some additional flavor on the US side and how nudging has affected policy, with some of those ideas being implemented in the White House Behavioral Sciences Team, check out Cass Sunstein’s book, Simpler. I am not sure how that team is currently doing given the Trump administration and policies to dismantle organizations from both the outside and within, but it is a good book. Although it’s been some time since I read that book, I recall a distinct a vibe around calculating return on investment as a key process intertwined with implementing nudges within government.

If you are looking for information on implementing nudge units within companies, I published a book in 2015, Inside Nudging: Implementing Behavioral Science Initiatives. Like the books previously mentioned, I typically have found nudge units to be very project-focused, and they often include elements of randomized controlled trials (RCTs) or experimental work. I have also found that nudge units tend to work best when they deliberately address elements and processes around Goals, Research, Innovation, and Testing. I call this Behavioral GRIT (essentially organizational fortitude to implement behavioral science). I propose that how companies implement behavioral science initiatives should be based around a vision implemented through a predominant organizational model (like an innovation center or consulting office) and then adding implementation elements (like an advisory board or a chief behavioral scientist). I’ve made an appendix to my book available here, which details predominant organization models and implementation elements to jump-start one’s thinking: https://steveshuconsulting.com/wp-content/uploads/2015/08/Inside-Nudging-Appendix-A-August-27-2015-v7.pdf. Leafing through that appendix might also give you some indirect ideas about what it might be like to work in a commercial nudge unit (recognizing that these vary a lot).

Finally, I also put together a short video introducing behavioral science initiatives (again related to commercial settings), and the video might also provide some additional color:

Posted on

Is Behavioral Economics Used in Business?

This post is reproduced from an answer that I wrote on Quora to the question posed to me, “Is Behavioral Economics Actually Used in Business?”

Broad, conscious, and concerted efforts to apply behavioral economics probably did not begin until sometime after 2008 with the release of Thaler and Sunstein’s book, Nudge. And then when new applications of behavioral economics started, they seemed to be mostly applied in the government space. While many principles of behavioral economics have preceded that and have been applied, I think the introduction of a popular science book and clever packaging helped the principles rise to a new level of consciousness.

Since then, the implementation of behavioral economics/science initiatives in business has started to grow, but it’s still somewhat early. Back in 2010, I was part of a team that started one of the early behavioral finance centers with one of the investment manufacturing firms in the United States. We introduced thought leadership materials like some of the other firms, but we also took it further by equipping financial advisors with specific tools to help assess the behavioral architecture of retirement plans offered by companies.

One key observation I’ve had is that certain companies can have different strategies for implementing behavioral economics. This can include wanting to do holistic innovation that touches on service, products, and applications. Or they can pursue narrower approaches, like research and thought leadership. I wrote a book, Inside Nudging: Implementing Behavioral Science Initiatives in 2016, mostly to help bridge the gap between science and the application in business. That work is based on my background in closely collaborating with academics in behavioral economics and companies looking to be on the cutting edge.

Here are a few examples of how the field of behavioral economics has touched business in my corner of the world relative to behavioral finance:

As an additional reference, you might also be interested in checking out the book by one of my colleagues, The Smarter Screen. That book specifically addresses behavioral economics in a digital world.

Posted on

Behavioral Economics Versus Behavioral Science

There will be different perspectives on the definitions of these two terms depending on context. Put simply, behavioral economics lies at the intersection of economics and psychology. Behavioral science is a somewhat broader term than behavioral economics as it is more inclusive of things that do not lie at the intersection (e.g., pure social psychology or neuroscience).

While the boundaries are evolving due to the nature of knowledge discovery, some things that lie at the intersection (i.e., behavioral economics as I’ve depicted) include choice under risk and uncertainty, prospect theory and loss aversion, myopic loss aversion, behavioral time discounting, heuristics, biases, mental accounting, behavioral game theory, and neuroeconomics. You will find that some people have a perspective that behavioral economists have foundational training in economics (i.e., come from economics departments) whereas other use the term more loosely and include those in the behavioral science area.

Note that when when you visit the intersection of these two circles you will inevitably see the distinction between how people behave versus how people should behave. You may also see the concept of nudges and behavioral solutions that try to address issues that people face.

Behavioral science is inclusive of the intersection and may also include things beyond that like memory processes, empathy, emotions, learning, moral foundations theory, group decision making, neuroscience, psychology of aging, etc.

Posted on

What is the Best Organizational Model for Implementing Behavioral Science?

During a recent conversation about user interface design and the differences in approach compared to behavioral science, the topic quickly turned to a question about what is the best organizational model for implementing behavioral science?

While behavioral science has been on the rise worldwide, the organizational model is still an important, unresolved question. Should the function sit within marketing? Within the user experience team? As a separate Behavioral Science Officer or Office of Behavioral Science to make the quality high and initiatives vivid? Or perhaps the behavioral science function should lie within the product team? Maybe within the digital strategy group?

In my work with Digitai in the past year, I’ve done work with companies in countries like Australia, Germany, Spain, UK, and the US. Although anecdotal, I’ve seen significant (albeit still emerging) activity with setting up behavioral science initiatives which go beyond pure marketing and are attached to innovation. This inherently requires more cross-functional integration of behavioral science with other existing functions within a company. Furthermore, this sometimes means helping to elevate the sophistication of the innovation ecosystem. This might include new technology partnerships, partnerships with researchers from the scientific community, and upgrades to a company’s testing and production platforms.

Yet while I have worked across many types of companies in the behavioral science area, it’s been somewhat skewed toward large companies with some increasing activity in the middle-market company space (e.g., which see the potential to disrupt the market by leveraging behavioral science principles). What about other companies that have more modest aspirations or resources compared to the large companies that are committed to more substantial investments?

The answer to that would need to be addressed separately to be responsible, but it does brings me back to the original question, which is “what is the best organizational structure for implementing behavioral science?” The key to answering this question is to think about strategy and goals first and then to design the organizational structure to fit the strategy. If your strategy is to innovate, then you may need a model that allows for a lot of cross-function interactions both within and outside of the company. You might want a behavioral science officer and an advisory board. If your efforts are focused mostly on marketing, then you might be fine with a simpler model and hiring or assigning some specialists to the department. If resources are even more limited, then perhaps the solution could include occasional use of outside resources, some training, or use of some do-it-yourself thinking tools (e.g., checklists and things to think about for behavioral science). A key to implementing behavioral science initiatives is to really think about strategy and goals first. Then you can think about the predominant organizational model that you’d like to follow plus any elements that might help with implementation.

Think strategy first, then tactics.

Readers of this post might also be interested in the following short video on implementing behavioral science initiatives

Posted on

Reflecting on Heuristics

I was recently asked on Quora, “Should one use heuristics at all as they are prone to cognitive biases?” What follows are my thoughts.

Heuristics usually allow people to make quicker decisions. For example, when catching a fly baseball, sometimes people use a gaze heuristic to keep the ball at roughly the same inbound angle by adjusting their position and moving forward or backward. This gaze heuristic allows us to quickly and dynamically make judgments to catch the ball as opposed to having to pull out the slide rulers, calculators, and physics books to figure out where the ball is going to land.

While heuristics can help with speed, sometimes we have the benefit of time to slow down to think about the consequences of potential biases and where the heuristics might lead us astray. For example, people often talk about a 4% drawdown rule/heuristic for using your wealth at retirement (e.g., use up 4% of your wealth each year). But one has to remember that using up your wealth is essentially an irreversible process. What type of risk analysis have you done? Have you assessed your longevity and potential variances both positive and negative? What happens if you live 40 more years? Have you accounted for negative health events? Have you thought about maximizing your happiness in retirement as opposed to economic numbers?

So heuristics can be used with some success. But heurisrics should be audited for their benefits and shortcomings, especially if the consequences of an error are significant enough.

Proudly powered by WordPress