In a recent Q&A, HBS Professors Francesca Gino and John Beshears sat down to discuss the dynamic role of behavioral economics in helping companies improve decision making and drive performance. They also offered a sneak-peek into the new HBS Executive Education program, Behavioral Economics: Understanding and Shaping Customer and Employee Behavior.
John Beshears: Behavioral economics is the discipline that combines insights from the fields of psychology, judgment and decision making, and economics to produce an understanding of the way humans make decisions. It is more accurate and more robust than any one of those fields could produce on its own.
Francesca Gino: All companies experience organizational problems—employees who are not productive, turnover that is too high, or products that are not succeeding in the marketplace. Thanks to what we know from behavioral sciences and psychology, we can help companies improve performance by helping their executives to make better decisions.
Often, executives fall behind on deadlines and the usual solution is to work harder. Instead, we decided to give people at one company the time to think. So for three weeks in this organization, we gave them 15 minutes at the end of each day to reflect on what they had learned throughout the day. The result: a more than 20 percent improvement in performance.
FG: We might think that having infinite access to data and information from all sorts of sources is a good thing. But what we know from psychology and behavioral sciences is that we are limited in our capacity to process it. In our new program, Behavioral Economics, we are focused on helping executives understand how to make good use of the data and analysis that is available to them.
JB: Executives often make poor decisions. They get distracted, they use pieces of information that maybe they shouldn't be using, or they neglect pieces of information that they should be using. Sometimes they reach the right conclusion, but fail to implement it. Behavioral economics then gives us a way of thinking about what we can do about that.
FG: One way to reduce poor decision making is to change the way we ask questions about the data we are using. We usually ask: What information supports what I want to do? What data tells me the decision that I'm making is a good one? Instead, we should ask: Is there any information that suggests that what I'm about to do is not the right course of action?
In our new program, we focus on ways to help executives understand how and why poor decisions are being made across the organization. Then we provide innovative tools and frameworks that they can immediately use to achieve better outcomes for themselves and their organizations.
JB: Behavioral economics suggests that instead of changing the way people think, we should change the environment in which they are making decisions. This has wide applicability in financial decision making, health decision making, workplace productivity, and life happiness. These are all domains where the behavioral economics framework can provide ways of improving outcomes by helping people to make better decisions in their organizations and in their lives.
JB: The deep processing that the human brain uses in order to reach decisions is simply too hard wired and difficult to alter. So instead of trying to change the way individuals think in a very deep sense, behavioral economics tries to change the decision-making context in order to promote better outcomes. That means tilting the playing field in the favor of people making the right decision.
FG: One of the lessons executives are going to walk away with from this program is higher awareness of their own tendencies, as well as those of others. Data shows that it's difficult to recognize that we may be wrong. So we do a lot of irrational things to protect the image that we are good, that we make good decisions, and that we are always able to decide the right path for ourselves and for our organization.
JB: Behavioral economics accepts the human brain as it is and devises strategies for changing the environment in which people are operating. We can set up the environment to either bypass the flawed ways that people make decisions or to encourage them to be more reflective. And we can bolster and engage the more effective decision-making processes that people don't deploy when they're distracted or off course.
FG: When we think about making a change, we often envision something that is going to be costly, take a long time, and require a lot of support from a lot of people. But what we're teaching executives in this program, instead, is that a very simple intervention, or change, can produce powerful change for the organization.
JB: Changing the environment is a much more scalable way to think about changing decision making. So we look for interventions that are not costly to the organization and that can produce a big impact.
FG: Confirmation bias leads us to look for and use information in our decision-making processes that supports what we believe to be true. Instead, we should be asking for information that might suggest that our assumption is wrong or that the decision we are about to make is not the right one.
FG: We are asking executives to think about the issues and poor decision making that are happening right now in their organizations and come to the program with those examples. They can use what they're learning throughout the week to rethink the problem and to start crafting a solution that they can immediately implement when they return to their organizations.
JB: First, they're going to walk away with a deeper understanding of the way humans make decisions. Second, instead of focusing on how they can change the way people think, they're going to change the environment around them. Third, they'll be able to rigorously test and evaluate the choice architecture changes that they implement.
