How good are we at making decisions? Articles claiming that human beings are fallible and poor decision-makers, often incapable of promoting their own happiness, gain virality on the internet. Some even argue that humans have been prone to poor decision-making for as long as we have roamed the earth.
But perhaps those assumptions are too harsh. According to principles of behavioral economics, our decision-making processes are a bit more complicated than we may think. In fact, research would argue that people can be prompted towards better decision-making. Enter Incentivized Behavioral Change: a way to influence decision-making using material rewards.
Behavioral economics studies have determined that we operate in one of two specific modes when weighing choices: automatic thought or slow and rational thought. When making decisions in a state of automatic thought, we are prone to rely on our instincts, deciding quickly, based on emotion. When making decisions in a state of rational thought, we rely on logic, effort, and our ability to be self aware.
Most would love to think that they are the “rational type,” always weighing options and coming to a well thought out choice, but few of us actually make decisions in that state. Our choices are easily influenced by language, message framing, peers, and biases, and as human beings we make decisions based on our own self-interest. This can be problematic for employers. If employees make choices to optimize for their own self-interest, they may not always make the decision that maximizes the benefit to their company. This doesn’t mean that those employees aren’t doing their jobs or that they don’t care about the company, but the path they take to achieve an outcome is based on their own convenience and maximum benefit.
Knowing that most of the decisions we make are guided by emotion and self-interest, it’s important to understand how to make real impacts on our decision making process in predictable ways.
A natural response to below average performance is to impose new rules and procedures to improve results. By doing so you run the risk of creating employee friction and sending the wrong message -- that the company doesn’t recognize the value of its employees.
Even when employees adhere to policy there is always room between policy limit and optimal behavior. Incentivized Behavioral Change optimizes the chances that the employee will make a favorable decision within the limits of policy or go above and beyond what policy dictates to achieve extraordinary results.
Incentivized Behavioral Change makes the case that dangling the carrot is more powerful than using the stick. By using material rewards to drive desired behaviors, we generate mutually beneficial outcomes. When the right incentives are introduced into the decision-making process, what an employee receives for making a decision that most benefits the company should provide more personal value than what they would be giving up for changing their behavior.
According to the “Behavioral Economics Guide 2016,” a positive reward can cause people to perform or change a certain behavior that they wouldn’t otherwise, if the result exposes them to an on-going external reward. Incentives for exhibiting specific behavior can cause a changed behavior to persist.1
By engaging in Incentivized Behavioral Change, companies can motivate exceptional behavior beyond what is expected from policy compliance. Incentives work by nudging behavior in a specific direction and over time can even change the culture in which employees operate. By recalibrating an employee's decision criteria, we can create a subtle shift in mindset, with a major payoff. Companies will find happier employees, who are more invested in the same interests as the organization—because after all, there will now be a direct and tangible benefit to the employees.
In a 2016 Aberdeen Study, it was found that organizations with programs that formally engage employees to make decisions that positively impact the company experienced a 26% greater year-over-year increase in annual company revenue.2 As an added benefit, a study conducted by the Incentive Research Foundation found that incentive programs can increase an employee’s interest in work by 15%.3
Forcing a change in behavior can create friction and discomfort for everyone involved. However, introducing incentives to motivate extraordinary behavior creates win-win outcomes because now the employee has something to gain.1. Samson, A. (Ed.)(2016). The Behavioral Economics Guide 2016 (with an introduction by Gerd Gigerenzer). Retrieved from https://www.behavioraleconomics.com
2. From Employee Engagement to Employee Advocacy: A Natural Progression, Aberdeen 2016
3. Incentives, Motivation and Workplace Performance: Research and Best Practices, Incentive Research Foundation 2010