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.

Thoughts About Finder’s Fees to Other Professional Services Providers as a Consultant

This answer is based on a question posed to me on Quora.

I’ve only used finder’s fees sparingly over the course of my professional services career. Here are some reasons why:

  1. Some of the best referrals for me have come from other people that currently work either for the client or as a consultant to the client. Providing a referral fee can sometimes create a conflict for those parties providing a referral. The same applies to me providing referrals.
  2. Other referrals come through people that know me or know of me. In these cases, I may provide a referral fee (or something else) more as a unwritten gesture than as a contractual, business regularity, mainly since business through these channels is very much appreciated but more irregular.
  3. Unless designed properly, the referral fee can be stranded between a space where not enough incentive is provided (or even insulting to the referrer), too much incentive is provided and margins are decreased too much, and/or an unwritten obligation is created where the referrer feels overly responsible as to whether the referred is successful or not (as opposed to being arms length from both the referred and the client).

Others may have different experiences, so make sure to get some other perspectives.

Do Consulting Firms Rely On Hiring Salespeople to Sell Work?

Many consulting firms (especially management consulting firms) rely on prior consultants in terms of selling work. Why? Mostly it is because people are the product. In consulting sales, you are selling yourself and your team. More specifically, you are affirming the problem statement, the problem-solving approach, and your team’s experience with solving similar (or comparable) problems in comparable situations. It is hard for external, non-consultant salespeople to do this.

Suppose the problem statement is to develop a new product. People who have experience in the relevant consulting area will know how to refine unstructured problem statements like this, design an engagement to solve the problem, and get the right people staffed on the project. Hiring people from the outside to sell unstructured consulting work (say professional salespeople who do not have consulting experience) may not work very well, although success of this type of approach usually depends on the type of work. For example, some large professional services firms do have more dedicated business development people in cases when the realm of consulting is more focused (e.g., HR consulting, accounting) and solutions are more regular, common, or repeatable.

In summary, to sell many types of consulting services (not all), one often needs to know how to actually do consulting work. That tends to be the primary reason why consultants sell work and not salespeople brought in from the outside. A corollary to this is that partners in consulting firm will often have to do some minimum amount of consulting work and not just sell services; consultants need some continuing involvement with field work to stay fresh and be able to sell.

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

Tips on How to Sell Consulting Services Without Giving Away Everything During Pre-Sales

A lot of consultants fear that they will give away too much in terms of advice during the pre-sales process. Here are some thoughts on how I’ve tried to keep sales processes on track:

  1. As you are engaging the client prospect, try to envision the big picture for the solution approach to the prospect’s business problem. For example, you may see that the client needs to a) better articulate the problem statement and the key priorities (vision), b) decide on an approach (strategy), and c) execute on all the tactical operational things to carry out the strategy (tactics).
  2. Communicate the big picture approach to the client.
  3. Try to add some value by helping them to articulate and refine the problem statement and perhaps also add a detailed item or two that they should consider as part of the more detailed solution approach workstreams. Yes you might consider this giving something away, but you will need to be able to add value and show the client how you are thinking to be able to sell to them consulting services. The client prospect needs to be able to trust you.
  4. Keep your pre-sales activities pretty tight. For example you might limit your pre-sales sessions to 2 to 3 meetings of 1–1.5 hours each. This will also help to provide some separation between planning and doing the work. If you are doing a good job selling your services, you should be able to tell within say the first 1-3 sessions whether you have a serious sales prospect and what the high-level requirements are to close the deal. Note you might be able to get to a high-level proposal or conceptual approach after the first 1–2 meetings.
  5. For many deals, you should be making it clear to the prospect that you are trying to better understand the problem statement so that you can propose the right approach to solving the problem; you are not solving the problem right there as solving the problem will take days, weeks, or months of collaboration and work.

To recap, make sure that both parties understand the problem statement. Both parties should understand the approach and should appreciate that solving the problem will take both time and work. Offer some value to the client in advance of sale; this does not necessarily have to be much, but you need to establish credibility and trust. Finally, set some expectations on the cadence and timeline to get to a proposal or no-go decision.

I’ve finally released Inside Nudging: Implementing Behavioral Science Initiatives


Inside Nudging is written for management professionals and scientists to feed their thinking and discussions about implementing behavioral science initiatives (which includes behavioral economics and finance) in business settings. Situations include the incubation of innovation centers, behavioral science overlay capabilities, and advancement of existing organizations. Companies need to develop grit – the ability and fortitude to succeed. The book introduces the Behavioral GRIT™ framework and covers key takeaways in leading an organization that implements behavioral science. Behavioral GRIT™ stands for the business functions related to Goals, Research, Innovation, and Testing.

The chapters are complemented by an appendix which covers ideas to introduce behavioral science initiatives. I argue that first a company needs to identify its goals and identify what type of predominant organization model it wants to pursue. There are five predominant organizational models I’ve seen. I also offer that a company should consider a number of implementation elements that may play a role during execution. Example elements include an advisory board and a behavioral science officer.

Note that the purpose of this book is not to teach people about behavioral science; there are many other books out there for those purposes. That said, Inside Nudging introduces some behavioral science concepts to provide context and help develop a common language between management professionals and scientists.

I see the application of behavioral science as still being in the early adoption phase. Many companies will benefit if they take time to develop the right approach. I hope Inside Nudging helps you with your journey.

Steve Shu

Praise for Inside Nudging






Emergence of Formal Behavioral Insights Teams and Initiatives

I recently ran into a short video by the New South Wales government which does a great job of introducing the notion of behavioral insights and application in the governmental space. Although still early, behavioral insights and the application of behavioral economics principles have been going global in the public policy space. At some point in the future we will see a wave build in the private sector – the value proposition for getting smart about  behavioral science is compelling. On the one hand, impacts can be large and returns can easily exceed 10X (see 22X cost savings for UK Nudge Unit). One the other hand, possibilities for competitive differentiation and new products seem limitless. For example, Opower tapped into a great market using software-as-a-service and a behavioral efficiency model for saving energy. Companies like Idomoo present companies with an opportunity to tap into behavior change using massively-automated and personalized videos.

But how do organizations get from here to there in the behavioral economics space? How will the wave build? The New South Wales government video really made me think about the gap in organizational knowledge about capitalizing on behavioral economics. It’s an opportunity. While some companies may be very sophisticated in their approach with behavioral economics, the broader industry is barely conscious of the power of behavioral economics (perhaps Behavioral Economics World 0.2 or 0.3) let alone able to reap large returns from it. How do we get to a Behavioral Economics World 1.0 or 2.0?

The UK Nudge Unit has a noteworthy approach. It is a consulting-like and scientific approach that essentially includes customized analysis and design, plus scientific testing and iteration.

As another example, when I was working with Allscripts we had more of a strategic, business unit approach. We took data we gathered in one market, build insights on top, and then tried to line up incentives and behavior change in complementary markets via offerings in a standalone business unit.

Yet as another example, at Allianz Global Investors we took another approach by setting up a Center for Behavioral Finance with a Chief Behavioral Economist and then establishing a number of initiatives within the Center to provide thought leadership and support the larger business.

Each of these routes is suited for different situations. For other organizations in general, I think it’s important to try and assess what the opportunity is, determine a strategy for moving forward, audit where you are and identify the gaps, and then design and execute on an operating model. Execution of the operating model could include building a behavioral team, outsourcing, augmenting, or partnering.

So to jumpstart your organization’s thinking on how to become a leader in applying behavioral economics, consider the following types of questions:

  1. Opportunity Assessment
  • Where do we get ideas from now?
  • How should we get new ideas related to behavioral economics?
  • How might we change the game?
  • What’s the potential opportunity?
  • How can we test new ideas related to behavioral economics?
  1. Strategy Development
  • What’s going on in the market?
  • What blue sky opportunities should we focus on?
  • What will our approach be with customers?
  • How will we competitively position ourselves?
  • What will the output of our efforts look like and how will we distribute?
  • How will we know when we are successful?
  1. Audit and Gap Analysis
  • Where are we at and how can we get smarter about developing ideas based on behavioral economics?
  • To what extent do we know how to design and test behavioral solutions?
  • How can we develop the organizational fortitude to succeed?
  1. Operating Model Development
  • What should a multi-year plan for the behavioral initiative look like?
  • What should our behavioral insights team look like?
  • To what extent should we build, outsource, augment, or partner for our team?
  • How should we incubate the initiative?

Please feel free to share your thoughts on other behavioral insights initiatives and teams, organizations implementing them, organizations not implementing but interested, who’s doing things right or not, unique approaches, new startups, etc.