It’s easy to see why Behavioural Economics has a ‘negative’ air about it… after all it describes the irrational, non-optimal reality of being human, the flaws in our decisions, memories and perceptions.  Economics, like life in general, is a lot easier when you can assume that everyone is acting rationally.  

Extrapolating from the individual to the organisation, a well intentioned corporate strategy often fails for the same basic reason… the reality of how an organisation behaves is far from what we would like or expect it to be.

Selecting the right strategy for an organisation's delivery capability depends on some insight into how decisions are made, if people follow the agreed processes, and how they collaborate. That’s not always easy to define for a large organisation, and perhaps why emergent, iterative, learning strategies work well.   

For me a more important and easier element to consider is how people work in general. Yes, every organisation is different, but at the end of the day we are all the same species. Our decision making processes, memories and perceptions have evolved together over 5 to 10 million years as humans, and 4 billion years with the rest of life on Earth.  Our biases, behaviours and traits are more common than different, and they are being scientifically tested, documented and detailed for all to know. 

Over the last year I’ve regularly used a deck of cards that describe the biases and heuristics that I’ve found over my career to have the most impact on organisational change in M&A. To identify likely implementation issues when considering a particular strategy I would flick through the deck. Over time they became more valuable… rather than human traits as barriers I now see how they can be enablers. ‘Escalation of commitment’, ‘Sunk Cost’, ‘IKEA effect’ and ‘Focusing effect’ can trigger (‘nudge’!) the behaviours needed for your strategy to be a success. 

For me Behavioural Economics is not a ‘negative’ field or series of roadblocks, rather a set of insights that expose the world for how it is.

Sincerely,