Employers must use Behavioral Economics to make work PSYCHOLOGICALLY rewarding
Daniel Kahneman Born: 1934, Tel Aviv-Yafo, Israel Died: March 27, 2024 (age 90 years) is a Nobel laureate in Economics renowned for his work in psychology, particularly in the field of behavioral economics, exploring how human decisions deviate from those predicted by standard economic theory.
As soon as my college professor of Economics said that humans are rational creatures, it told me that I had made a mistake. People are rational. They will seek out the information that will help them take the correct decisions. That may work in case of engineering problems, but how does that apply to humans? Human beings are NOT rational.
Wine "tastes" better when it is expensive or poured from a heavier bottle. And you STILL claim we are rational beings?
We never paused to ask what make people smoke, despite being warned on every packet, "Cigarette smoking is injurious to health."
When prices rise, demand drops said my Economics professor. High price is a signal for quality say behavioral economist. During a pivotal moment, the owners of Chivas Brothers decided to raise the price of Chivas Regal, their Scotch whisky brand, with the hope of capturing consumers’ attention. When they doubled the price, it resulted in a twofold increase in sales.
It was when I read Thinking Fast Thinking Slow that I first began to see what was missing - the irrational human being.
“Daniel Kahneman made Economics applicable to human beings. We need to do the same for HR”
The real human being is biased but confident. They are irrational. They justify their decisions with elaborate data points AFTER they have decided. We want choices. But when we get a lot of choice, it stresses us. We signal our attractiveness through brands but believe that branding is just fluff. We believe that expensive wine tastes better. Change is a social process - not done through grand launches. We have all the data to show that people listen to podcasts, but few organizations (if any) leverage podcasts internally. We tell people that we need to attend skill building workshops to be successful, but successful senior leaders are never seen attending any workshop.
We are like that only. I wish HR was designed for Humans. <read this>
1. We first believe the conclusion, then the facts
You may have been told that we draw conclusions after we have studied all the data and the arguments. Yet anyone who has attended a meeting at work will tell you, that the underlings will manufacture arguments (and even use data selectively) to prove the boss right. When people believe a conclusion is true, they are also very likely to believe arguments that appear to support it, even when these arguments are unsound.
Employers will pay a premium when they spot a "prestigious college" or familiar name of a firm on the resume of a candidate. When such a candidate performs poorly, no one stops to question the assumption. They simply find another candidate to fill the spot. This is the HR equivalent of "no one got fired for choosing IBM".
Kahneman’s work on System 1 and System 2 thinking indicates that humans are prone to rely on intuition (System 1) rather than analytical thinking (System 2) under certain conditions. In hiring, this can lead to judgments based on gut feelings rather than data. Kahneman would advocate for structured interviews with standardized questions that allow for an objective comparison between candidates, reducing the reliance on intuitive judgments.
2. The irrational conference circuit
When a company is doing well, their "best practices"will be amplified by their leaders at conferences. Those leaders are invited by the media to share their secrets. Yet when the same company fails, the speakers and best practices are both dropped from the conferences. The company's failure may be because of poor funds management or a poor product market fit and not their HR policy. Above all, it is sobering to know that success or failure may both be shaped as much by chance.
3. HR teams must hire influencers
They know how to find the best jobs, how to navigate office politics, share ways to negotiate salary and everything HR should do if only people would ask them. TikTok influencers are doing what people don't find inside the organization.
Content creators such as @hannagetshired and @careersbykirstie, for example, share tips on increasing your salary and navigating office politics. People trust them. They respond to people in real time. They seem to side with the employee. #careertok has 1.5 billion views. Here is "Evil HR Lady" - someone who is a go to HR person that people trust.
4. What makes us feel good about our work? Hint: It is not money
Having influencers as part of the HR team could be a terrific way for the employer to communicate with the GenZ and Millennial audience who are becoming a growing percentage of the workforce. Let them create content for your L&D team. Trust me they will do a MUCH better job at building a pull for your upskilling program.
Encourage the leaders to build their PERSONAL BRAND. Research shows people like to work for famous people
When we get stuck, we turn to YouTube to find answers to DIY challenges. Those we turn to become our influencers. Most of them are not certified instructional designers. They know that credibility comes from the ability to simplify stuff.
Hire a team of experts who have experimented in crafting "nudges" and increased acceptance by "reframing" the context. They will do as much (maybe more) to make the workplace, a fun place to show up to.
HR leaders must believe that they are designing systems for humans. Maybe I should say, HR should be designed for irrational humans. They would like to work in places where the pay is not the reason why they LOVE the work and the workplace. They want workplaces to be designed with things that Behavioral Science has already demonstrated.
Take a Masterclass in Behavioral Economics
One of my favorite speakers on Behavioral Economics is Rory Sutherland He is entertaining. He is opinionated. He tells you stuff that changes the way you look at the world. I absolutely think you should watch this.
If you are interested in some other links to know more about Behavioral Science, leave a comment below.
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