Inside behavioural economics
Most complex business problems boil down to human behaviour. Ultimately, how people behave strongly influences how products, services and organizational processes are designed and how stakeholders embrace them.
As emerging threats and opportunities rapidly change the business landscape, organizations that truly understand what drives customers and employees to think or act the way they do will prevail.
Behavioural economics is at the centre of this. It shows we don’t always make decisions in a rational and calculated way. We often use thought processes that are intuitive and gut-driven rather than deliberative and planned, leading us to:
You can’t force people to be more rational, but by recognizing and anticipating cognitive biases using behavioural science and data analytics, you can design targeted, cost-effective interventions that nudge people toward better decisions and behaviours. It’s about addressing the inefficiencies that stand between you and the best outcomes for your organization and stakeholders.
Informing debtors of prompt repayment norms in their town resulted in
a 15% increase in payment rates
Status quo bias
Shifting an opt-in to an opt-out saving strategy for employees increased enrolment rates by 25%
Providing a low-value option increased the perceived value (and likelihood
of purchase) of remaining options by as much as 52%
Including a client’s name in a reminder text message has shown a 10% improvement in debtor payment rates
Watch our “Designing for Humans” video to find out.
Unlike traditional economics—which assumes people make decisions logically and rationally—behavioural economics merges human behaviour and economics to show how people really make decisions and why they behave the way they do. In essence, it’s about designing solutions that align with how people actually behave.
— Melaina Vinski, Behavioural Economics Lead, PwC Canada
Here are steps organizations can take to design business solutions that align with how people behave.
— Ramy Sedra, Data and Analytics Consulting Leader, PwC Canada
While applying behavioural economics in public and private organizations is still fairly new, its benefits in both sectors are clear. The process of aligning your existing services and processes with what we know about human behaviour can be as simple as changing the way a communication is framed, how it’s displayed or what time of day it’s delivered. Here are a few examples of solutions behavioural economics offers to today’s organizations across many sectors and business functions:
Behavioural economics has been useful in designing incentives that align with what matters most to employees, allowing them to choose actively the trade-offs they make with financial rewards, vacation time and bonus structures. This leads to levels of sustained productivity that are otherwise difficult to attain. Behavioural economics has also been valuable in the hiring of new talent and promotion of diversity in the workforce. When hiring managers carefully implement interventions to counter biases in the hiring process, they’re able to more effectively bring on talent that’s best for the job rather than talent that just looks best for the job.
Using behavioural economics systematically in communications can have a profound effect on whether an injured worker will return to work. And for those workers who ultimately do go back to work, it can affect the amount of time it takes them to recover and the likelihood they’ll keep working after returning.
Read more about using behavioural economics as a competitive advantage in the insurance sector.
Behavioural economics can counter our tendency to “spend now, save later,” tackling the trend toward risky leverage among Canadian consumers. As a result, customers are able to save more for retirement, which reduces financial reliance on the state (and therefore the taxation of citizens), and they’re more likely to maintain a balanced mental and physical state. In addition, it increases how much financial advisers are able to invest.
It’s all about modifying your existing strategies to align with what we know about human behaviour—the way people think and act.
Leading organizations are already seeing the benefits of viewing their business challenges through a behavioural lens and putting people at the centre of their strategy. From there, the applications—and opportunities—are almost endless.
Give us a call to learn more about how behavioural economics and advanced analytics can help you turn your vision into a reality.