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Chocolate or fruit

Behavioural economics look at the effects of psychological, social, cognitive and emotional factors on the economic decisions of individuals
REUTERS/Leonhard Foeger

By Ian Hendry

There is a good chance I am about to offend some readers. To some extent I do apologize beforehand, but in some ways I find it difficult to accept personal fault.

Let me explain. I know someone who really loves chocolate. They are drawn to it like a magnet. They have a sensing mechanism that flashes whenever chocolate is close at hand. They search for chocolate bargains in the grocery flyers. One might call this a fixation, a fetish, or simply obsessive compunction.

You will understand the difficulty then, when that same person indicates that they are desperate to lose weight. To me, it is a pretty simple proposition. Do you want to lose weight, or not? Knowing the best and worst chocolate bars for a diet is irrelevant to me. The fact is that this person is locked in a logical/illogical conundrum.

In truth, my guess is we all “contradict ourselves” in some shape or form. We were taught a long time ago in basic economics that, as humans, we are supposed to make analytically driven, rational, logical decisions that can evaluate costs versus benefits on most things, thereby achieving the best return (value/profit).

I’m sure someone is perfecting the chocolate money-back guarantee diet but, until then, why is it that we self-sabotage our best intentions. Even worse, these fixations do not need to be self-defeating. Do you remember Imelda Marcos? She owned more than a thousand pairs of shoes, some of which, incidentally, are now housed in a museum in Marikina. Such extravagance boggles the mind, and albeit an extreme exception, it makes the point — psychology is a part of decision-making.

Behavioural economics is a relatively new science. Simply put, it studies the effects of psychological, social, cognitive and emotional factors on the economic decisions of individuals, and institutions, and the consequences for market prices, returns, and resource allocation.

Craig Lambert, in a Harvard Magazine article a decade ago, reminded us of Wimpy. For those of us old enough to remember, Wimpy was Popeye’s portly friend who loved to eat. A great insight comes from his line, “I’ll gladly pay you Tuesday for a hamburger today.”

This is an example of the “intertemporal choice” – the tension between seizing an available award in the present, versus being patient for the rewards in the future. For the chocolate lover, this person understands that if they are to lose weight, fruit is a better choice than chocolate. However, given an immediate choice between chocolate or fruit right now, chocolate would win out. If asked what choice they would make one week from now, the answer is likely to be fruit.

The Fram oil filter commercials educated us that “you pay me now, or you pay me later,” the inference being that if you didn’t change your oil frequently, the engine repair cost would be infinitely more expensive. As humans, we seem to discount the importance of the future. I’m sure we all know people who have all the latest technological gadgets, upgrade cars frequently and so on, but lament the fact that they cannot afford a down payment on a condo/house.

In SCNetwork’s next event on Sept. 14, Julian House, a leading Canadian behavioural economist, will look at the implications of behavioural economics through the lens of HR. He will suggest that there are new approaches to drive employee engagement, design learning that works, and ways to impact employee choices around benefit programs.

Understanding behavioural economics clearly has implications for our communications strategies. For example, a study sponsored by Great-West Life in 2014 found that 20 – 40% of eligible employees were not participating in their voluntary workplace pension plans. From studies conducted, we have learned that people have a tendency to place greater value on avoiding losses than on making gains.

Understanding this, a company that matched 25 cents for every dollar the employee contributed, framed the offering as an automatic 25% rate of return. Some have branded this as the “nudge” theory and perhaps even a questionable practice. However, behavioural science is not just a question of shaping behaviour by influencing people in the choices they make; it is also about creating optimum conditions for effective thinking and increasing our satisfaction and well-being. If satisfaction and wellness are part of the HR portfolio, it stands to reason behavioural economics is an area worthy of our increased attention. Julian brings that learning to our door.

Ian Hendry

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