The Behavioural Issue

AT ITS CORE, every organization is in the same business: changing behaviour. For-profit companies try to sway consumers to buy their products; governments try to convince citizens to pay their taxes on time; and an NGO might want to encourage families to sign up for tuition support for their children.

Unfortunately, in most cases, leaders spend too much time on the initial stages of the behaviour-change process: analyzing the market, creating a strategy, and developing a product or service. They pay far too little attention to what Rotman Professor Dilip Soman — who heads up Behavioural Economics in Action at Rotman (BEAR) — calls ‘the Last Mile’. This, he says, is where ‘the rubber hits the road’: Whether it happens online or in a brick-and-mortar environment, it is where the consumer makes a choice to take action — or not.

Traditional Economics assumes that people are much like the robot featured on our cover: We have infinite computational ability, are unemotional, impervious to loss and have an uncanny ability to assign ‘utility’ to everything we consume. The truth, it turns out, is much messier: Behavioural Science shows that humans are myopic and impulsive; we are heavily influenced by other people and by the status quo; and emotion, context and loss-aversion — amongst other things — guide our decisions.

Understanding these dynamics can help to explain current behaviours and influence future ones. In this issue of Rotman Management, we seek to expand your understanding of behavioural insights and how they can be applied to achieve your organization’s goals.

Public officials around the world are embracing behavioural insights to increase compliance, protect the environment and more — as Prof. Soman et al. show in Policy by Design, on page 6. The UK government is widely considered to be the global leader in the application of these insights, and on page 32, David Halpern, head of its Behavioural Insights Unit, describes the most powerful way to get someone to do something, in Changing the World, One Nudge At a Time.

Cognitive biases are an issue in every industry — but perhaps even more so in financial services. That’s because financial products are complex in nature; the payoffs usually occur over a long period of time; and money is an inherently emotional topic. On page 56, Kent Baker and co-authors look at How Behavioural Biases Affect Finance Professionals. Elsewhere in this issue, we feature Nudge co-author Richard Thaler in our Thought Leader Interview on page 14; and in our Idea Exchange, the University of Pennsylvania’s Angela Duckworth looks at how ‘grit’ relates to success on page 97; Rotman Professor Nina Mažar interviews Varun Gauri about the World Bank’s behavioural initiatives on page 113; and Rotman faculty Lisa Kramer, Bing Han and Avni Shah discuss their research findings. As our contributors demonstrate in this issue, wherever human behaviour is involved, there are opportunities for behavioural insights to overcome organizational challenges. And as their evidence indicates, this is something business leaders, policymakers and governments alike should be thinking a lot more about.

FINAL NOTE: This issue marks Rotman Management’s 10th anniA versary. We have now published 30 issues in the current format — all of which can be purchased on our website (rotmanmagazine.ca). Thanks to all of our readers for your support to date. We look forward to bringing you the latest in business thinking for years to come!