Behavioral Economics is dead - Long Live Behavioral Economics!
Dr Milyan Hills, Chief Anthropologist and Peter Dorrington, Chief Strategy Officer offer multiple decades in the fields of predictive analytics and behavioral science, each are proven in the real-world generation of novel insights and actionable support to decision-makers in both the public and private sectors.
In this article, they show how Behavioral Economics is invaluable to gain a leading edge in today’s business world, countering claims that behavioral economics may be too complex, nuanced or inefficient to apply in enterprise-scale applications, or that it is simply too difficult to apply in real-world environments.
At this moment, behavioral economics is in market correction – we have passed the ‘peak of inflated expectation’, suffered through the ‘trough of disillusionment’ and are firmly on the ‘slope of enlightenment’ – now is the time we find the true value of behavioral economics.
Mark Twain wryly remarked that, although not as robust as he’d wish to be, “the reports of my death are greatly exaggerated". So too are some recent articles reporting a metaphorical flatline on the cardiogram of behavioral economics / science and nudge theory. Just as Twain’s enthusiastic obituary writers were premature, these reports could not be more wrong, but the reasons that they are wrong are not what you might expect.
One of the reasons why some claim that behavioral science is becoming a busted flush is obvious: not all behavioral economics implementations or practitioners are equal.
If your blend of consultancy or in-house behavioral science attempts to apply lessons learned from hand-washing in Chilean abattoirs, draws up lists of hundreds of biases, imagines that they can force ‘psychology’ on the subconscious, or is led by someone with only a passing knowledge of psychology: you’re right, results will have been and will continue to be disappointing.
Another reason for criticism is simply that behavioral economics does not go far enough to explain all of the decision-making process: no matter how much you ‘nudge’ a person towards a particular action - there may be other, more powerful influences in play. Put another way, behavioral economics works best when the subject has a free choice and all other factors are equal – and that rarely happens in real life.
As with every innovation (from Business Process Re-engineering to Blue Ocean Strategy to ‘bots’), the impact is only as good as the receiving culture and organization can permit, and the implementation team enable.
The problem with the exponential uptake of behavioral economics is that almost anyone and any model has been touted as equal sources of unbridled commercial success in terms of guaranteeing amazing customer and user experiences.
However, when people proclaim behavioral economics expertise after they’ve completed an online course, attended a brief training event or re-branded a psychology degree and blindly re-tread products and services with tools and models developed by others – it’s no surprise that these efforts fail, no matter how well-intentioned.
These ‘experts’ appear exotic and impressive when they pitch their snake oil but, as Mark Twain noted about such situations, “an expert is an ordinary fellow from another town”. Sometimes this fellow can be a genius – most often they’re not.
All is not lost, though as quality wins out: and those providing genuinely evidence-based, data-grounded behavioral economics products and services, working for clients that understand the difference between science and sophistry, can co-create extraordinary competitive advantage. The secret is to be real about the challenges and the benefits and set expectations accordingly. The best systems in the world will never offer perfect solutions, but they don’t have to – they just need to be significantly better than the alternative.
Real value arises from leveraging the invention of intellectual property and the re-tooling of experience and expertise, itself developed from exposure to demanding, unforgiving strategic and operational contexts.
Yet some ‘practitioners’ never see the richness and opportunity presented by employees and customers because they’re not tuned to do so – they are more focused on the activity than the outcome. They are the ones who have extracted a few quotes from Nobel Prize-winning authors, who imagine that all users and customers can be nudged into any decision but neglect the real or perceptual constraints on an individual’s choices – they are the death rattle of bad behavioral economics.
The ‘irrational exuberance’ which has led to the TED-talk fueled selling and buying of ersatz human science is over. Good news: those who purchase or develop proprietary and genuine expertise rather than generic, cookie-cutter frameworks and don’t buy the doom-mongering that behavioral economics is dead are those that stand to reap the rewards.
At this moment, behavioral economics is in market correction – we have passed the ‘peak of inflated expectation’, suffered through the ‘trough of disillusionment’ and are firmly on the ‘slope of enlightenment’ – now is the time we find the true value of behavioral economics.
Indeed, for the true believers that have seen the light – we’re entering into a golden age where the fusion of hard science, commercial acumen and exquisite commitment will deliver amazing benefits to those committed to complete the journey.
As Mark Twain also wrote: “truth is more of a stranger than fiction”. We know that ground truth always wins. If you’d like to learn more about our heritage and novel data-driven approach to creating options for decision makers, generating competitive advantage, and ensuring that customer joy is developed and retained – please get in touch, we’d love to hear from you.
About Peter Dorrington
Peter is co-founder and Chief Strategy Officer of Anthrolytics and an expert in using a combination of data and behavioral sciences to lead transformation in the field of Experience Management (XM).
Over the last 5 years, Peter has been focused on developing and using Predictive Behavioral Analytics to understand why people do what they do, what they are likely to do next, and how businesses should respond. As the inventor of Predictive Behavioral Analytics, Peter is an internationally recognized expert in the field of Customer Experience analysis.
Peter has worked on programs in both the private and public sectors, including one of the world’s largest retail banks, automotive manufactures, the defense and healthcare sectors.
About Dr Milyan Hills
Mils is Chief Anthropologist of Anthrolytics and an expert in employing behavioral science and conceptual innovation to provide competitive advantage to organizations in the public and private sector.
Mils was the first anthropologist to work for the UK government, initially undertaking applied research to understand, influence or protect decision-makers for the defense and intelligence community. He later worked and led on programs and capabilities, testing and enhancing the performance of processes, plans and people at national and international strategic levels.
Mils has discreetly helped organizations develop best in class solutions by maximizing human capital and organizational culture. He has worked for elite and high performance operational teams, developed c-suites and invented new ways of communicating and achieving real world impacts for the defense, manufacturing, financial and highly-regulated sectors.
