In a recent Q&A, HBS professors Francesca Gino and John Beshears sat down to discuss the role of behavioral economics in helping companies improve decision-making and drive better performance. They also offered a sneak peek into the HBS Executive Education program, Behavioral Economics—Virtual.
John Beshears: Behavioral economics is the discipline that combines insights from the fields of psychology, judgment and decision-making, and economics to produce a rich understanding of the way humans make decisions. Building on this foundation, behavioral economics then offers a set of tools to help people make wiser decisions.
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. We can help companies improve performance by helping their executives use the tools of behavioral science to shape the decisions of employees and customers.
For example, employees often fall behind on deadlines, and the usual solution is for them to work harder. Instead, when my collaborators and I were working with one company, we decided to give employees 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 that day. The result was a more than 20 percent improvement in performance.
Francesca Gino: It might seem that having infinite access to data from all sorts of sources is a good thing. But what we know from psychology and the behavioral sciences is that people are limited in their capacity to process all of this information. Participants in our Behavioral Economics program will learn how to make good use of the data and analysis that is available to them, and how to help employees do the same.
John Beshears: Individuals 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 gives us a way of thinking about what we can do to counteract these patterns of behavior.
Francesca Gino: One way to reduce poor decision-making is to change the questions we ask 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 this program, we focus on helping executives understand how and why poor decisions are being made across their organization. Then we provide innovative approaches and frameworks that they can immediately use to achieve better outcomes.
John Beshears: Behavioral economics tells us that we can help people make wiser choices by changing the environment in which they are making decisions. This idea has wide applicability in financial and health decision-making, workplace productivity, and life happiness. These are all domains where applying the behavioral economics framework improves outcomes by helping people to make better decisions.
John Beshears: The deep processing that the human brain uses 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 to promote better outcomes. That means altering the playing field in favor of people making the right decision.
Francesca Gino: One of the lessons that executives are going to take away from this program is greater 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 perception that we are right, that we make wise decisions, and that we are always able to decide the best path for ourselves and for our organization.
John Beshears: 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 bypass the flawed ways that people make decisions and to encourage people to be more reflective. And we can engage the more effective decision-making processes that people fail to deploy when they're distracted or off course.
Francesca Gino: When we think about making a change to an organization's processes in order to improve outcomes, 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 very simple adjustments can often produce powerful improvements in their organization's outcomes.
John Beshears: Changing the environment is a much more scalable way to think about changing decision-making. We can often identify changes that are not costly to the organization and that will have a big impact.
Francesca Gino: We ask executives to think in advance about poor decision-making that is happening right now in their organizations, and they 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.
John Beshears: Executives will walk away from this program with a deeper understanding of the way humans make decisions, as well as a framework for designing decision-making environments that help employees and customers make wiser choices.
