Behavioural Economics for Business by Burow, Slade, B Byrne, Harris and A Byrne

Reviewed by Jane Woolley, March 2016

Rating

Recommended, but not essential.

This book is about applying an understanding of behavioural economics in business.

Most Insight professionals will know how it can be applied to influence the behaviour of consumers or the public – for example, to subtly encourage people to complete their tax return on time, or to encourage them to take the plunge and buy something over which they are hesitating.

What’s different about this book is that it also looks at how to apply behavioural economics to some internal aspects of running a business.

The IMA’s best practice work has already identified that a key internal application of behavioural economics for Insight teams is to influence stakeholders to take action arising from insights. This book provides further examples of internal applications of behavioural economics.

In a nutshell

Burow et al are consultants at Neuropower Group in Australia. This consultancy specialises in enhancing the performance of leadership teams and also in organisational change. It does this by applying principles developed from neuroscience.

Reading between the lines, the topics in the book reflect the authors’ individual specialisms rather than giving a comprehensive review of all of the possible applications of behavioural economics in business. This multi-author approach also leads to some repetition and difference in writing style across the book.

The book essentially covers five areas:

  1. An introduction to cognitive bias and behavioural economics
  2. Applying behavioural economics to marketing
  3. Applying behavioural economics to performance management
  4. Applying behavioural economics to safety and risk management
  5. Applying behavioural economics to decision making by leadership teams

The key messages about the relevance of behavioural economics to the last three of these issues are:

Performance management. Don’t assume that people will respond rationally to performance feedback. Emotional issues of fairness and identity trump those of rationality. This accounts for the widespread disgruntlement with performance management ‘systems’ in organisations.

Safety and risk management. Regulations to manage safety and risk should generally be based more on principles which promote engagement and individual decision making rather than on rules which promote blind compliance. The exceptions are situations in which automatic responses to predictable time-critical situations must become embedded in System 1 thinking - e.g. air traffic controllers, emergency services staff, military personnel, etc.

Decision-making by leadership teams. The way in which our brains work can sabotage our decisions and senior leaders aren’t immune to this, particularly in times of stress. Leaders can compensate for cognitive biases simply by understanding and paying conscious attention to the most common ones.

The book also outlines some tools that can be used in each of these areas.

For example, for it provides a list of 20 decision-making biases with a simple question next to each, designed to prompt decision makers to overcome that bias. Some of the tools seem more practical and useful than others. The tool suggested to simplify performance feedback could appear insultingly simplistic, even to a ten year-old!

Key insight applications

Insight teams have a particular interest in how the senior leadership team in an organisation makes decisions. Insight is sometimes described as a decision-support function, as it helps to bridge the data-intuition gap.

The IMA’s Insight & Behavioural Economics investigation has already identified the scope for deploying behavioural economics to influence the behaviour of stakeholders. At a corporate level, organisations should be concerned with enabling their leaders to make effective decisions. The father of behavioural economics, Daniel Kahneman, has described organisational decision making as the ‘next big thing’ in behavioural economics. 

As the champions of the application of behavioural economics and of the use of evidence-based decision making, Insight teams could be instrumental in encouraging their organisations’ senior leadership teams to apply lessons from behavioural science to their own decision-making behaviour. And the IMA's new training courses reflect the importance of this subject; workshops will now be offered on applying behavioural economics to consumer decisions and to stakeholder communications. Please let us know if you are interested!

Related reading

  • ‘Predictably irrational: The hidden forces that shape our decisions’ by Dan Ariely (2009)
  • ‘Thinking fast and slow’ by Daniel Kahneman (2011).