Just a Nudge: Behavioral Economics at the Office
- Behavioral economics studies how imperfect people make imperfect choices and how to positively influence decision-making
- Multiple governments have created teams that are applying behavioral economics to address issues such as health coverage and retirement savings
- Google and other companies have used similar techniques in the workplace
The idea of prodding people into making better decisions is a beguiling idea gaining traction with governments and employers alike. The 2008 book Nudge by Richard Thaler and Cass Sunstein, which discussed ways to address choice architecture relating to Medicare Part D, organ donation, and many other challenges, popularized the concept of “nudges” and real-world applications of behavioral economics.
Behavioral economics is a blend of psychology and economics that studies how imperfect people make imperfect choices and how to positively influence decision-making. The discipline is often used within the realm of finance, but is frequently being applied by governments and the private sector to induce changes in matters such as recycling efforts, energy consumption, and tax collection. In July 2015, the UK’s Behavioural Insights Team (aka “nudge unit”) released a report summarizing the results of its efforts over the preceding two years; the U.S. equivalent followed with its first report a few months later. And now Australia is joining the action: Malcolm Turnbull’s administration is assembling a behavioral economics team, with a Harvard professor managing the effort.
Employers are experimenting with nudging their employees into better decisions—Google is a prominent example—and are being nudged by governments. Along the way, researchers are measuring the effects, with important implications for promoting happier, healthier employees and an improved bottom line.
A six-month behavioral economics experiment conducted in 2008 at a high-tech company in China illustrated the power of losing money. The study, led by a Rotman School of Management professor and a University of Chicago economist, employed the framing effect by giving some of the 165 selected employees a provisional bonus for the following workweek that would be withdrawn if the production threshold were not met; the other employees were told they would receive the bonus after reaching the threshold. Over the six months of the experiment, both incentive types increased productivity but the “punishment” scenario improved total productivity by 1% more. The researchers took pains to work within company guidelines, including by not referring to the withdrawn money as a “fine” or “punishment.”
Since healthy employees are important for ensuring a healthy bottom line, aspects of wellness are ripe for nudges. A study by researchers at Stanford, Yale, Harvard, the University of Pennsylvania, and Evive Health experimented with ways to improve flu shot rates. The study’s subjects—3,272 utility company employees meeting the CDC’s flu shot recommendations—were assigned to receive reminder mailings with different messaging. For those receiving a generic reminder, 33% of employees got the vaccination, while 37% of those receiving a reminder asking them to write down the date and time they intended to visit the on-site clinic followed through. At sites where flu shots were offered on just one day, reminders that prompted the subject to write down a time showed the greatest engagement across the study—38% were vaccinated.
As detailed in Work Rules! by Laszlo Bock, Google has tried out smaller plates and Meatless Mondays at company-sponsored cafes (a minority of employees reacted aggressively to these changes, with reports of people even throwing food at café staff). Other experiments involved putting freely available candy in opaque or colored containers and measuring consumption relative to a baseline; at just one office, employees ate 3.1 million fewer total calories from snacks over seven weeks. A finding from using smaller plates at a café (and letting employees know the reasoning behind the switch) reduced total consumption by 5% and waste by 18% during one week. Bock, Google’s SVP of people operations, said in his book that “A sense of humanity compels us to be thoughtful, compassionate, and above all transparent when deploying nudges.”
OSHA took a page from behavioral economics when it decided it will start publishing information about workplace fatalities and serious injuries (in early November, an OSHA representative said the agency is working to prepare the material to go online, but no publication date is set). In a September 2014 statement, Assistant Secretary of Labor David Michaels related an anecdote about the same piece of machinery at a company injuring two employees before killing another and noted that post-injury inspections frequently reveal previous incidents. Michaels explained the rationale of public disclosure:
Since no employer wants their workplace to be known as an unsafe place, we believe that the possibility of public reporting of serious injuries will encourage—or, in the behavioral economics term, "nudge," employers to take steps to prevent injuries so they are not seen as unsafe places to work. After all, if you had a choice of applying for a job at a workplace where a worker had recently lost a hand, versus one where no amputations had occurred—which would you choose?
While some companies have experimented with auto-enrollment for employees’ 401(k) plans, another option is to influence savings through nuanced language. To assess methods for increasing employees’ contributions, Yale and Berkeley researchers employed anchoring, goal-setting, and savings threshold cues in emails to employees at a technology company and analyzed the changes to savings. The emails, which were sent in November 2009 and October 2010, all contained language about the company’s 401(k) plan, but the treatment emails contained two extra sentences that the control emails did not. The three types of cues were:
- an example increase to the employee’s contribution rate; the anchors of 1%, 3%, 10%, and 20% of income were randomly assigned
- a randomly assigned example savings goal of $7,000 or $11,000, with a description of how much more money would be matched by the employer
- a match threshold that described how much money the employee could contribute to receive the maximum employer match for the year
The anchor cue had the longest-lasting effect on savings, but the goal and threshold cues tended to have more immediate effects. Employees decreased their contribution rates when presented with a low anchor but increased contribution rates by up to 2.9% of income with the higher cues. The authors noted in the study that nudges may be a less expensive way to shape savings decisions compared with financial education, but commented in a related article that the findings “provide both an opportunity and a warning for organisations and policymakers,” particularly concerning the effects of unintentional cues.
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