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Behavioral Economics

Questioning the Need for a Nudge: the Ethics of Workplace Behavioral Economics

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Behavioral economics has been a hot topic for several years now, and its applications in the workplace are highly touted. At Rocketrip, we encourage companies to optimize their travel programs through the use of behavioral economics and “nudging” (the popular term for behavioral change initiatives). This method works well and often causes less friction with employees than the alternative, which is implementing draconian policies to control costs or compliance.

Of course, most newly popular ideas have their share of controversy. Every so often we get questions around the ethics of using behavioral economics in the workplace. After all, no one wants to feel that they’re surreptitiously motivating others.

We firmly believe in the ethics of nudging. Otherwise we wouldn’t be doing what we do! To fully understand why we feel this way, it’s best to start with a history of the discipline.  

Traditional Economics vs. Behavioral Economics

Anyone who studied Economics 101 knows that traditional economics rests on the assumption that people behave rationally, motivated by self-interest. It also assumes that people’s preferences are stable over time and are unaffected by the environment in which choices are made.

About thirty years ago, economist Richard Thaler began questioning this view when he noticed that these conjectures often don’t describe real-life behaviors. People’s decision making varies depending on the context; even the color of a package can affect whether that’s the item someone buys.

Inspired by Thaler, behavioral science teams or “nudge units” have emerged all over the world, working to influence decision making in both public and private sector organizations. Thaler’s book (co-authored with Cass Sunstein in 2008) Nudge: Improving Decisions about Health, Wealth, and Happiness, has led to widespread adoption of policies to “nudge” people’s behavior by making subtle but carefully-planned changes to their environment. The change to the field of economics has been so profound that articles such as The End of Rational Economics have been published.

Whence the controversy?

There’s another side to the story. Thanks to a handful of high-profile stories of employers who nudged workers to dangerously high productivity without any increase in compensation, social scientists and writers have taken up the question of the tactic’s ethics. The employers enjoy significant benefits, but do employees pay too high a price?   

Writing in the New York Times, Noam Scheiber argues that some companies are “engaged in an extraordinary behind-the-scenes experiment in behavioral science…” where workers are nudged into systems of more work for less pay.

Some ride sharing apps, for example, send drivers notifications of their next fare opportunities the way Netflix and YouTube pre-load upcoming videos. Taking another ride becomes the default option; turning down a fare and quitting for the day requires overriding the default. Therefore, drivers are motivated to keep working when they might be ready to go home.

Is this an ethical use of nudging? In his article, Noam Scheiber argues for “no.”

But does this application reflect the way organizations generally use behavioral economics?

Behavioral Science for Everyone’s Benefit

A different example of behavioral economics in the workplace comes from Australia, specifically, the New South Wales (NSW) government’s Behavioral Insights Unit. They conducted a study focused on employees from eight organizations in Sydney in which they nudged those employees to take advantage of flexible work schedules and avoid peak-hour commuting.

The participating organizations wanted to encourage flexible working because of its positive effects on employee engagement and retention. The benefits for employees are also well documented.

Key characteristics of this experiment that are relevant to a discussion of ethics are the benefits received by employees and the transparency of the nudges employees experienced (two of the three nudges involved explicit conversations about the desired adoption of flexible schedules).

In contrast, the initiatives described by Scheiber are hidden and benefit the employer at potentially significant cost to the employee. Anyone worried about the ethics of their own behavioral economics projects need only ask themselves if those two criteria, transparency and equal benefits for employees, are met.

Another important notion to keep in mind is the difference between traditional and behavioral economics, which was described earlier. In traditional economics, people are thought to behave in their own best interest. Behavioral economics recognizes that this is not always the case. Therefore, ethical nudging can be understood as something that removes psychological barriers to employees making choices that benefit them. It does not push them to make even less optimal decisions; it merely makes beneficial decisions easier.

Nudging Towards Better Business Travel

The world of business travel is changing. On the one hand, annual global costs are expected to reach $1.7 trillion by 2021. Companies that want to stay competitive need to manage that cost. On the other hand, employee engagement and retention are priorities at odds with strict policy implementation. In fact, business travel policies are increasingly becoming a factor in how prospective employees vet their potential employers.

So how do companies manage travel without compromising employee interests? Here is a perfect opportunity to utilize behavioral economics. Nudging of the variety done by New South Wales’s Behavioral Insights Unit, that is nudging to lower the barriers to actions that benefit employee and employer equally, can be used to help manage business travel.

At Rocketrip, for example, we help companies optimize many areas of their travel program, such as cost control, online booking tool compliance, and driving business to preferred vendors. We do so through a platform that lets companies reward their travelers for those desired behaviors.

Nudging holds a lot of promise for travel management, among other applications in the corporate world. When done with ethical guidelines in mind, it is a powerful tool for encouraging compliance and improving engagement.

Ultimately, it’s not worthwhile to worry about whether nudging is ethical. The reason is that nudging is like any other management technique. When it’s done without regard for employee wellbeing, it isn’t ethical. When it’s done with everyone’s best interests in mind, it is not only ethical but an important tool in the management toolkit.

All Tags: Behavioral Economics

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