HR Lessons from Behavioral Economics
for Designing the Employee Experience

Today, the possibilities of peeking into the future seem to be endless. Companies generate massive amounts of data and use predictive analytics to chase insights, uncover patterns and predict the future. However, interpreting the sea of data has proven to be more difficult than we thought. Why? Enter the land of human behavior.

HR experts have always aimed to lead their organizations in the complex terrain of human behavior.  Not always successfully, because human behavior has had the perception of being too fuzzy by the predominantly analytical corporate world. Until the new science emerged - the science of Behavioral Economics. This relatively new field studies the decision-making behavior of individuals and groups. It applies new research findings from psychology and sociology to classical economics and looks at the cognitive biases and irrational ways of human decision-making.

Today, this emerging science has called for a new mental map to guide us through the landscape of human behavior, a map bridging the rational analytical world with the world of the often inconsistent and irrational human behavior. Are we as HR professionals ready to take the lead in developing this new map?

While marketing and customer service professionals work with these findings extensively, HR has been slow in utilizing these behavioral lessons. There are many opportunities out there. Here are just a few examples for inspiration:

1. The Power of Default

The well-known example of this phenomenon is a story about a European country where the government tried to raise the number of organ donors, which was considerably lower than in other countries. More PR? Education? Commercials? In the end, the answer was surprising: the key to higher rates of organ donors was in the construction of the form which people fill out when they reach adulthood, specifically, if they have to check the box to give consent (the so called opt-in) or check the box to not give consent (opt-out). In both cases, there is a subtle suggestion that not checking the box (either to opt in or to opt out) is the default choice.  And when we are faced with complex decisions, we tend to go with the easier option - the default option. Some HR professionals have used the power of default when enrolling employees into benefit programs or key activities. Employees are included as a default but they have a "free" choice of opting out of the program. Subtle nuances with a big impact on participation rates.

2. Unknown Preferences

We do not always understand our own preferences and sometimes we are constructing them on the go. Or even better - we look back at our past behavior and figure out the preferences afterwards as we try to explain why we did something. And once we lean towards a certain opinion, we have a tendency to look for supporting arguments that confirm that opinion, simply to be consistent in the eyes of others - and in our own eyes. This brings a number of lessons when we work on company culture changes, engagement issues and overall change management.  Asking about preferences in focus groups may not help uncover them as we sometimes simply do not understand them. So we have to add empathy and observation to the forefront, borrowing tools from anthropology and other social sciences.

3. Group and Organizational Perspective

The inconsistencies, cognitive biases and other complexities of individual decision-making are even more interesting when viewed from a group and organizational perspective. Not surprisingly, big organizations often adopt business practices from other companies, which may turn out to be unsuitable for their organizations. They also tend to go with the default choice in complex decisions and often make irrational and inconsistent decisions. This is a fascinating area where new insights have emerged for HR professionals about selecting people, managing, evaluating and rewarding their performance, engagement and shaping the company culture in general.

How to Apply these Lessons in HR?

Here is the challenge of behavioral science: it shows us where people do not behave rationally and what cognitive biases and thinking shortcuts they take - but it does not offer a clear path on what to do about it. The new map leaves us with two paths:  the first one is to help people make more rational decisions. The other path is to take these biases and tendencies into account when designing HR programs, when selecting, developing and engaging people. And while we should work on both of these paths, it is painfully crystal-clear which one is more realistic.

For HR professionals, this creates an opportunity to bring value to the business area through uncovering new insights into employee experience and learning to work with them. From my experience, one of the best methodologies for designing and shaping employee experience is Design Thinking or Service Design with some adjustments for internal HR use. These innovation methodologies offer many tools we can use for improving and shaping the employee experience. 

Consequently, the science of behavioral economics helps us understand the complexities of human behavior with the hope of influencing and rationalizing decision-making in our organizations. And hopefully also in our communities, countries and globally.