A Management framework to Apply Behavioral Sciences for decision making

A practical guide to effective decision making

Introduction

Executives are lining up to use behavioral economics influenced concepts as the must-use science to solve for a diverse set of issues and objectives. At its core is the science’s ability to explain the reasons behind our ‘everyday decisions’. These behavioral insights can be applied to finance, operations, sales, analytics, government, and many other functions. Increasingly managers are looking to apply these concepts and take advantage of a science that can transform human biases into positive business outcomes.

Despite the positive benefits of the science, it has failed to offer a ‘managerial framework’ allowing practitioners to translate behavioral insights to business success.

We introduce to you a managerial focused ‘Behavioral science framework’ that’s designed to align application of behavioral economics concepts with ‘stated management or business objectives’.

Core Insight

The Behavioral Science Management Framework

The framework will guide you to choose which behavioral dimension you should apply, which cognitive behaviors require ‘promotion’ or ‘mitigation’ to achieve the objectives and how to target specific behavioral science concepts that, if properly implemented, will lead to achieving stated business objectives.

Using this framework will help managers apply behavioral-driven policies with an established and effective management framework rather than relying on the ‘chance factor’ to find those behavioral concepts that can help achieve your most pressing objectives.

Where to Begin?

Modern management literature is focused on first providing a concept and then providing examples as proof of its existence. This approach causes practitioners to confront a huge volume of data to parse through and find the concepts that best fit to help them achieve ‘key organizational objectives’.

The process often leads to an unmanageable number of possible paths, with little direction on where to begin. In Behavioral Science this concept is called ‘Choice Overload’.

Individuals faced with choice overload often experience greater levels of decision fatigue, unhappiness, and choice avoidance. While the science has given us many concepts to apply and achieve our objectives, it does lack clear methodologies to appropriately manage and direct these concepts in a managerial environment.

Establish a ‘Choice Architecture’

Choice architecture is a basic and foundational concept of the behavioral field. It explains how the way choices are organized influences behavior. This better way of choosing the behavioral insights will lead to mitigating the risk of ‘choice overload’.

Behavioral sciences offer more than 80 different concepts to be applied in numerous and diverse situations. One of the easiest ways to counter ‘choice overload’ is to reduce choices.

The Choice Architecture for Behavioral Sciences

Behavioral concepts can be segmented into five possible dimensions:

1. Outcomes valuations — Will individuals have to value consequences?
2. Calculation bias — Are individuals required to process uncertainty?
3. Timing elements — Will decisions made in the present alter future outcomes?
4. Environment influences — Is there an opportunity for external factors to impact behavior?
5. Choice architecture — Can we influence behavior by how we organize choice?

The purpose to define these dimensions is to condense complex and varied behavioral concepts into a manageable superset that helps managers in planning and implementation.

The questions serve the dual purpose of directing many of the concepts associated with the behavioral field into one of the five dimensions (figure 2 below) and guide users to those fields most relevant to a specific objective.

Repositioning information provides the benefit of a well-constructed database architecture. Also, the reorganization shows that many of these dimensions may work in tandem to fulfil a singular objective.

For example — A marketing database dashboard one might want to not only understand who the customer is but also what the purchasing behavior is over a variety of dimensions like timing, channel and location.

Positioning choice dimensions relative to your identified objectives

The Four Level Managerial Framework for Applying Behavioral Insights

1. Set the business objective
2. Choice dimension
3. Promote or mitigate
4. Implement the behavioral concept

Setting up the objective (The Objective Level)

Before exploring the behavioral concepts, understand and set the underlying objective. Here are some examples of popular use cases of embedding behavioral dimensions into one’s objectives:

C-level: Embedding behavioral nudges to help overcome C-suite biases

Crowd: Behavioral prompts to steer change in customers, citizens, students, and patients.

On Field: Prompting behavior change among health care workers, case workers, and field sales representatives

Designing Communiques: Improving websites, call-center scripts, campaign contribution letters, and tax-collection letters (measuring with A/B testing)

Product design: Designing products that help promote behavior change. For example, “Internet of Things” products are developed to act simultaneously as data-gathering devices as well as the media for delivering “digital nudges” (behavioral interventions)

Choosing the right dimension (The Choice Level)

Once the problem and objective are identified determine the relevant choices that may influence the likelihood of success. Answering the associated question can help you figure out which dimension(s) most appropriately serve the objective.

Important: Absent a critical mindset, one may easily fall into the trap of looking to fit every dimension into any objective. When all you have is a hammer, the world is a nail!

Promote or mitigate (The Behavior Level)

Once choice dimensions are established, determine if these are behaviors one should encourage (Promote) or reduce (mitigate). Start by reviewing the relevant behavioral concepts associated with each dimension (See figure 2 above).

Implementing the behavioral concept (The Implementation Level)

Once the concepts are narrowed down to a relevant subset and choices are made to encourage or mitigate the behavior, develop specific implementation practices. Test and revise the pursued solution. If revisions are required, consider initiating iterations at the choice level.

Use Cases: Practical Insights and Application

Reframing an issue with the objective in mind can result in efficient execution of the behavioral insights — Case study

Link to the case study: http://bit.ly/casestudypoweroffree

Conclusion

Cognitive limitations continually hamper rational behavior. Those who understand these biases can systematically outperform their counterparts. However, fragmented management literature on the topic makes it difficult to apply behavioral insights in a rigorous, optimized and systematic way.

The four step framework helps managers, business leaders, administrators and consultants bring logic, structure and direction to apply these fragmented behavioral concepts in a synchronized way.

Key takeaways:

Find your objective: Always start by asking yourself the end purpose or objective.

Map out the framework: Go through the exercise of filling out the framework as explained above. Refer to the case studies for details.

Experiment and revise: You’re not going to be right always. Be prepared to iterate, monitor and re-adjust your concepts until you get the desired result (Achievement of stated objective.)

Key topics: Behavioral Science, Management Framework, Business Decision Making, Strategy