Predictably Irrational: Behavioral Economics, Talent Management and Employer Branding

Inspired by my recent work sourcing and coaching speakers for the 2018 TEDxTUM event in Munich, I’ve been devouring great books by former TED speakers. One of these that stood out was Dan Ariely’s fascinating work on behavioural science, Predictably Irrational. 

If you don’t mind paging through a seemingly endless stream of creative, low cost experiments involving chocolate, beer, and unsuspecting MIT students, you’ll learn some amazing things. Some things you might have already known or suspected, but other things may surprise you because they not only irrational but predictably irrational.

I recommend the book, as the experiments are sometimes hilarious and always instructional, but here are a few highlights for talent strategy:

1.  Everything’s relative: If you want people to choose A instead of B, introducing a third option that is a slightly worse version of option A will make A more attractive than B and also make it easier to reach a decision. The reason is that making A better than something also makes A seem better than B. This is useful information when designing total compensation packages as well as communicating bad news.

2.  Emotions cloud our judgement even more than we realize: We know people tend look for data points to justify the decisions they already want to make, but if you ask people to predict how they would decide in a moment of emotional excitement, it turns out they are vastly wrong at predicting their own behaviour - even with the benefit of experience, meaning Dean Martin got it wrong. That’s why creating a positive emotional response to your employer brand is so important, and why charismatic and caring managers can do more for the business than complicated performance management strategies.

3.  Don’t confuse social norms with market norms: This is important for businesses trying to be the ‘caring employer’ because trust implies a social relationship. If the company doesn't live up to that trust and tries to fall back on impersonal market norms when something goes wrong after building a relationship based on social norms, it creates a trust problem that’s difficult to come back from. This distinction is a critical part of defining your employer brand, i.e. don’t position yourself in terms of social norms unless you can also deliver an employee experience that lives up to your promise.

4.   Expectations shape perception: If I give you two menu choices and one is described as, ‘lightly braised pork medallions with a caramelized puree of autumn apple,’ and the other as, ‘pork chops with apple sauce,’ it turns out that a richer and more emotion-evoking description leads people to expect a more enjoyable experience, which in turn becomes a self-fulfilling prophesy. Similarly, a higher price creates the expectation of a superior product, which in turn creates a more positive experience. Important note for HR when defining your employer brand: Don’t confuse richer and emotion-evoking with longer and/or full of buzzwords.

5.   Free has magical properties: If you normally charge $2 for a service and offer a $1 discount, the impact is very different from a reduction of $1 to free, even though the difference in both cases is $1. Rationally speaking, there should be no difference and yet people can’t seem to resist the lure of the freebie. This creates all sorts of interesting possibilities for HR and compensation professionals to design compensation packages in creative ways.  

6.  It’s hard to let go: Any good sales person understands the value of the hard deadline when the current offer vanishes forever. Anyone working for a business in transition has experienced the treadmill of adding new workstreams while still keeping legacy parts of the business on life support (tips for avoiding here). People like to keep all the options on the table for as long as possible, which is why limited availability or putting a time limit on options can help create clarity and spur people into action.  For any HR manager who's had to chase people to complete the much hated engagement survey, a 'Free gift card if you respond by 3PM today' strategy can work wonders.

7.   First choice results in a better experience: In an interesting experiment where four menu options are offered to four people, the person who chooses first is more likely to enjoy their meal more than the others. The people who choose next feel subtly pressured to make a different selection and are then more likely to experience buyer’s remorse and wish they’d ordered the same thing as the happy early adopter. This highlights the potential of making people feel they are getting special consideration or ‘first dibs’ on a new project or opportunity.

Understanding how behavioral economics shape behavior and perception can help strengthen your talent management strategy and create a more positive employee experience.  If you'd like to read more about behavioral economics, I wrote a similar post for marketing professionals here.

Thanks for reading and comments are always welcome.

Working Girl