The Behaviour Business

How to apply behavioural science for business success

Richard Chataway

• Publisher: Harriman House
• Year: 2020
• ISBN:
  9780857197351
• Edition: 1
• Topic: Business
• Subtopic: Business Communication
• Index: Business

If you are in business, you are in the business of behaviour – and unless a business influences behaviour, it will not succeed.

Part One: How to Create a Behavioural Business

Chapter 1: Undoing Economics – A New Way of Thinking

Undoing economics

When i was at university 20 years ago, behavioural science as a field of study was virtually non-existent.

But now, things are very different. In addition to flourishing academic courses on behavioural science, behavioural economics and experimental psychology, there are over 200 behavioural insights teams operating with local and national governments around the world. Leading companies are installing chief behavioural officers, and working with businesses like my own to embed this understanding into their work.

The history of behavioural science, and how it has led us to a richer, more accurate understanding of what drives our behaviour, is really a classic underdog story. It is the story of how the 300-year-old goliath of traditional economic theory, which sees humans as rational operators, has been felled by a group of determined academics – in particular the ground-breaking work of Daniel Kahneman and Amos Tversky3 – using the slingshot of behavioural economics.

What is heartening is that this new way of thinking – that humans are not purely rational, utility-maximising calculators, as neoclassical economics often assumed – is fast becoming the norm. Forward-thinking governments around the world are embedding this approach into their policy. The world of business is actually lagging (badly) behind.

But times are changing. When running training courses in behavioural science, I like to gauge knowledge in the room by asking which of the leading popular science books on the topic (like Thinking Fast and Slow and Nudge) people have read. Ten years ago, between 10–20% of people in the room had one or more of those books. These days the ratio is usually over 50%, as the base level of knowledge has grown.

In addition to building that knowledge and understanding within a business, either by hiring those lucky enough to study it or buying it in from outside, what can a business do to ensure it is always focused on changing behaviour? And what, structurally and strategically, does focusing on behaviour mean in a business?

That is what we shall explore in this part of the book. But first, let’s examine what is new about this way of thinking, and what it means for businesses in general.4

Why is behavioural science important for business?

After the 18th century,5 academic theory about how people behaved was mostly based on a traditional economic theory of utility maximisation. That is, every human decision was based on a simple rational weighing up of the pros and cons of a particular action. Professors Richard Thaler and Cass Sunstein, the authors of Nudge, call this straw-man version of humans an ‘econ’, or homo economicus – because it is someone who only exists in the pages of an economics textbook. Like the character Spock from Star Trek, they are a totally rational operator, ungoverned by emotions.

And, like Spock, they are not human.

Let’s take an example – why people commit crime – to show the flaws of this approach. The University of Chicago economist and Nobel laureate Gary Becker devised what is known as the Simple Model of Rational Crime (SMORC) to explain why crime happens. This states that, in any given situation, a potential criminal weighs up the benefits of the crime (e.g. the financial gain) versus the potential costs (e.g. likelihood of being caught and going to jail).

According to this theory, the Enron fraudsters, for example, made this cost-benefit analysis and (wrongly with hindsight) decided the money they made was worth the risk of their actions. That risk being jail time and the future insolvency of the business.

The problem with SMORC, like most neoclassical economic theory (and financial models and management/marketing theory derived from it), is it assumes the Spock model of humans as totally rational beings who only act based on self-interest.

If this were true, all of us would be committing certain low-risk crimes on a daily basis. As Dan Ariely, James B. Duke Professor of Psychology and Behavioural Economics at Duke University writes:

“We wouldn’t make decisions based on emotions or trust, so we would most likely lock our wallets in a drawer when we stepped out of our office for a minute … There would be no value in shaking hands as a form of agreement; legal contracts would be necessary for any transaction … We might decide not to have kids because when they grew up, they, too, would try to steal everything we have, and living in our homes gives them plenty of opportunities to do so.”6

If you have ever tried to stop some form of dishonest behaviour in business – over-claiming on expenses, or stealing lunches from the communal fridge, for example – you will know this is not an accurate picture of how people behave. Increasing the chances of being caught (emailing the company saying you are checking expenses more thoroughly in future, for example)7 will not solve the problem.

This is because emotions play a key part in decision-making: our behaviour is not just governed by financial benefit. Although it fell in 2018 to 72% from normal levels of 90%,8 the murder detection rate in London is so high that no one would ever rationally consider it a wise course of action. Yet over 130 murders were committed in the capital that year, most of which had no obvious utility to the perpetrator. Clearly, there are other drivers of criminal behaviour.

Ariely’s work has shown that emotions can be effectively used to combat dishonest and illegal behaviour. In one case, he reduced the proportion of over-claiming (cheating) made on a simple insurance form by 15%.

How? Simply by moving the standard ‘I promise that the information I am providing is true’ declaration from the end of the form, to the beginning. This made the honesty requirement more salient 9 – and made no difference to the costs or ...

Table of contents

• Contents
• About the Author
• Preface
• Foreword by Rory Sutherland
• Introduction
• Part One: How to Create a Behavioural Business
• Part Two: Delivering in Digital with Behavioural Science
• Part Three: How Behavioural Science Helps Us Better Understand AI, Robots – and People
• Part Four: Boosting Productivity with Behavioural Science
• Part Five: Behavioural Science and Your Customers
• Part Six: Behavioural Science for Better Marketing
• Conclusion
• Acknowledgements
• Publishing details