how to convince your boss to use insights and strategies from behavioral economics

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How to Convince Your Bossto use insights & strategies

fromBehavioral Economics

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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?

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Approach the problem

like everyone else…

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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.

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…and you will get the same results as everyone else.

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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

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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.

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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.

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Decision-makers use the same old tactics over and

over...

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But THEY AREN’T

Because decision-makers assume people are rational.

Once you understand the

drivers of behavior, you can change

behavior.

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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>.

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The BE(Behavioral Economics)approach

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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.

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How can this approach be

applied to retail, healthcare, and

retirement?

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BE

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.

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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

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BE

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

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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.

Share of designated organ donors

BE

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.

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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.

Year 1 Year 2 Year 3

6.3 6.2 6.16.5

9.4

11.6

Pension savings as share of monthly salary

Declined SMarTJoined SMarT

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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, explorehttp://ConceptTree.BEworks.com/

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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.

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How to Convince Your Bossto Leverage Behavioral

EconomicsExplain 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

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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 ArielyCo-Founder &

Chief Behavioral Scientist, BEworksProfessor, Duke University

Best-selling author

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You’re on your way to advancing your business

through theBEworks Approach!

info@BEworks.comwww.BEworks.com(+1) 416-920-1921

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