It has been 14 years since Richard Thaler and Cass Sunstein co-authored their landmark book, Nudge: Improving Decisions About Health, Wealth and Happiness. The book made the eloquent argument that marketplaces are a collection of humans, and therefore a thorough understanding of human behaviour is critical to succeeding in them.
Nudge made the important distinction between two kinds of entities: ‘Econs’ and Humans. Econs are those hypothetical creatures that live on the pages of Economics textbooks. These mythical creatures are forward-looking, unemotional, can store and process copious amounts of information and are always looking to maximize outcomes. Humans, on the other hand, are very different: We get overwhelmed by too much information or too many choices; we get emotional and stressed when trying to make complex decisions; and we often choose to act in order to maximize our short-term happiness rather than longer-term outcomes.
Within organizations, the field of human resource management has evolved to embrace the idea that people are our most important resource. The field itself refers to the creation and implementation of practices, policies and processes to effectively organize and manage human capital resources in the workplace, in the service of the ultimate goal of enhancing business outcomes. Obviously, this involves a series of many discrete-yet interconnected activities.
Broadly speaking, human resource management performs two kinds of activities. The first relates to the application of judgment and therefore decisions relating to human resources — for example, who to recruit, who to promote, and whom to provide training and additional responsibilities to. The second set of activities revolves around the construction of processes to ensure that employees receive the support they need to effectively create value for the organization. These processes include the delivery of salary and benefits, annual assessments and mentorship.
Human resource management (hereafter, HRM) therefore involves a series of people (HR professionals) making judgments, decisions and creating procedures and policies for another set of people employees). In that sense, it is the most human-centric role in any organization.
The question of what it means to be human has its roots in a large literature in Psychology and the behavioural sciences. In this article I will focus on three aspects of humanity that have a significant effect on organizations — and therefore, on HRM: the role of context, the pervasiveness of procrastination and the use of heuristics to make decisions.
Although functional, heuristics often result in negative
consequences in the HRM domain.
CONTEXT. Philosopher and psychologist William James wrote that human behaviour is an interaction between the organism (the individual), and the environment (the context in which judgment and decisions are made). He further argued that the very same individual could make different decisions as the context around them changed.
Many years later, Thaler highlighted the importance of what he called SIFs (supposedly irrelevant factors) in decision-making. SIFs shouldn’t matter, based on what economic theories would suggest, but empirically do affect judgment and choice. Examples of SIFs include aspects of timing (the time of day or the day of the week or the season or month in which a decision is made); aspects of physical features of the environment (whether the decision is made in an office or at home, in the physical world or online); and the information and choice presentation environment (whether there are other options available, the manner in which information about alternatives is presented).
In the domain of legal decision-making, the principle of ‘legal formalism’ holds that judges apply legal reasons to a fact of a case in a rational mechanical and deliberative manner and that extraneous factors should have no effect. However, research shows that the percentage of favourable rulings drops gradually as the day starts up until lunchtime, and picks up again after lunch and then shows a similar pattern in the second half of the day.
PROCRASTINATION. The behavioural sciences literature is replete with demonstrations of the idea that a significant number of people who intend to make certain decisions or take certain actions end up not doing so. For instance, many respondents in a survey about retirement planning wished that they could have saved more for retirement but were unable to do so. Likewise, there are endless demonstrations of the fact that people intend to save, spend more time with their families, learn new skills or develop healthy habits; but despite good intentions, they are unable to get the desired task done. A recent review argued that there are three segments of people in any behaviour change intervention:
Motivated enthusiasts are those who agree with the need to take the action and get it done immediately.
Diehard opponents might have a number of reasons for why they have absolutely no intention of changing their behaviour.
Naïve intenders plan to get the job done but somehow never manage to.
Rather than deploying effort and resources to try to convince the latter group, the optimal strategy is to help them follow through on their intention and convert it into action. Examples include interventions such as auto-enrolling them into retirement plans or changing the defaults on organ donation forms to increase consent rates.
HEURISTICS. Put simply, heuristics are mental shortcuts. When people are confronted with decisions that entail copious amounts of complex information and they don’t have either the motivation or the ability to process it, they look for simpler pieces of information (cues) that they believe will help them make the right decision. For example, rather than making a detailed assessment of the content of a report, a manager might believe that an employee who took a longer time to produce theirs did a more thorough job than the one who took less time. This manager would be using the duration heuristic to judge the quality of the work.
As another example, the representativeness heuristic suggests that people tend to use features that are typical of a certain group to make inferences about the quality of a particular member of that group. For instance, a recruiting manager could categorize a prospective applicant based on the fact that they attended a particular university, or, even more damagingly, as a function of their ethnicity or country of origin.
Another well-documented heuristic is the so-called availability heuristic, which suggests that instances where information comes readily to mind are overweighted in our decision-making. For instance, people are likely to believe that there are a significantly large number of deaths in automobile or plane accidents relative to natural causes because instances of accidents are much more easily retrieved. After all, newspapers are filled with examples of catastrophes but don’t tend to carry stories of people who die of natural causes.
Although functional, heuristics in particular often result in negative consequences in the HRM domain. Consider a recruiting manager who had success with hiring candidates that had a degree from a particular university, or that had previously worked for a certain organization and might favour candidates from the same university or organization.
Similarly, an HR manager might assume that the information presented on a résumé is the most important (and perhaps the only information they should be looking at) rather than recognizing that there could be additional relevant information to consider. This behaviour is an example of what is called the completeness principle — the idea that people accept problem statements and information framing exactly as presented to them without questioning whether it could be framed in another manner.
Embracing Behavioural Science in HRM
Following are some illustrative examples of what it would look like to embrace these behavioural insights in the realm of HRM.
AVOIDING THE PITFALLS OF INTERVIEWS. There are three main forms of interviews in today’s HRM operations: Technical interviews attempt to understand the candidate’s technical skills; structured case-based interviews are used to determine an individual’s ability to navigate specific situations; and free-form unstructured interviews are used to get to know job candidates and their personality and to assess fit with organizational culture. Interviews of the free-form type are becoming increasingly popular in other domains as well — in particular, in admissions offices at universities or internship applications for MBA programs. However, a considerable body of evidence suggests that free-form interviews have limited, if any, validity.
Behavioural sciences suggest that not only might interviews not be helpful, but in some situations — when they provide salient cues that might be negatively correlated with success — they might actually hurt. It is possible that interviewers form snap judgments or appraise candidates on the basis of features that are perhaps not relevant to the role for which they are being hired. Alternately, they might simply ignore the complex information and rely (erroneously) on the simple cues gathered from the interview.
A key consideration is the fact that we now know that there is considerable heterogeneity across people, and that applicants to a particular job will vary in terms of learning styles, how they best communicate and whether they are spontaneous or thoughtful. The emphasis on a standard interview template might therefore unnecessarily disadvantage some candidates.
DIVERSITY AND INCLUSION INITIATIVES. Despite stated attempts to improve diversity and inclusion in the workplace, many organizations are still falling short. In one recent study, science professors rated male applicants for a science lab position as significantly more competent than female applicants with the same basic profile. Both male and female science professors also offered male applicants more money and were more willing to offer mentorship to men.
It is unlikely that anyone involved was deliberately trying to disadvantage women applicants, but these outcomes occur on a regular basis due to stereotyping. Stereotypes are heuristics that enable us to process information quickly, but as indicated earlier, they often come at the cost of accuracy. Common stereotypes include gender stereotypes (the belief that men are more competent than women at certain jobs) and ethnic background stereotypes (the belief that people from certain ethnic backgrounds have skills that members of other ethnic backgrounds do not).
A considerable body of evidence suggests that
free-form interviews have limited, if any, validity.
How can research from the behavioural sciences help us mitigate the effect of some of these stereotyping and appraisal biases? The first strategy relates to eliminating salient yet potentially misleading cues. Researchers have found that not having salient cues makes it more likely that participants in their experiment focus on the relevant data and make decisions more rationally. In the context of hiring, this would suggest that one way of eliminating the effects of gender or ethnic bias is to simply eliminate cues that might provide information about gender and ethnicity.
In one compelling demonstration, the number of women recruited to a large American orchestra increased dramatically as the orchestras adopted a ‘blind’ audition process: Rather than having musicians perform on an open stage in the presence of talent scouts, they asked the musicians to play behind screens, making it impossible for the talent scouts to see the performer. The absence of any gender cues increased the likelihood that they focused only on the relevant information (in this case, the quality of their performance) and increased diversity in orchestra hiring. In a similar vein, Applied, a recruitment service provider firm, specializes in providing application and recruitment solutions that remove the opportunity for ethnic or racial biases by eliminating the salience of the potentially distracting cue.
It is important to remember that simply hiring a more diverse workforce is not the answer to sustained diversity. Diversity needs to be maintained throughout the tenure of the employee within the organization. This means that similar techniques should be applied for promotion and related decisions of assigning the employee greater responsibility throughout their careers with the organization.
Another relevant finding in the behavioural sciences is the research on joint versus separate evaluation and decision making. Imagine one candidate who is from a disadvantaged group but with greater competency in math, and a second one who is from an advantaged group but with a lower competency in math. Presenting these two candidates side by side will focus attention on the math competency, and it would be relatively easy to see that the disadvantaged candidate does better on the more relevant attribute. Therefore, encouraging side-by-side comparisons will go a long way in reducing the effects of stereotypes.
DESIGNING INCENTIVE PROGRAMS. One key task performed by many HR departments is to design incentive programs to create and motivate employees to improve productivity. Common examples include profit-sharing plans, a performance-based incentive plan, team incentives, or spot awards and recognition on achieving different levels of accomplishment. There is a wealth of research from the behavioural science that can inform the design of these programs.
One key finding relates to the so-called framing effect — the idea that the same information presented differently can have different effects on human behaviour. In one field experiment in a manufacturing facility in China, employees were offered a performance-based incentive. Each employee had a productivity target for the day, but if they reached a higher target, they would receive an extra ¥320 in pay. In the context of this incentive plan, information was presented to employees in one of two ways. Some employees were told that if they increased their productivity, they would get the extra money. Another group was promised the extra ¥320 for reaching the higher productivity level but told that if they failed to reach that level, they would lose the ¥320.
Results showed that people in the second group were much more likely to show an increase in productivity. When presented as a loss, the incentive of ¥320 had a significantly larger psychological effect than when it was presented as a gain. This common human bias, first identified by Nobel Laureate Daniel Kahneman and Amos Tversky, is known as loss aversion. Other researchers have studied the effects of decreasing incentive schedules on productivity and other forms of output.
IMPROVING TRAINING AND COMMUNICATIONS. Behavioural sciences offer a number of specific suggestions on how communication can be improved to increase comprehension and to facilitate action. In one demonstration, researchers experimentally changed the way in which communication was drafted to encourage employees to avail of a flu vaccination program. Every participant received a standard message that contained the following introduction: ‘We would like you to imagine that you are interested in protecting your health. The Centre for Disease Control indicates that a flu shot significantly reduces the risk of getting a flu virus. Your employer tells you about a hypothetical program that recommends you get a flu shot this fall and possibly save $50 off your bi-weekly or monthly health insurance contribution cost.’
After this basic introduction, there were three variants of the email message. In one condition, participants were asked to check a box if they were planning to get a flu shot that fall. In a second condition, respondents were asked to place a check in one of the following two boxes: I will get a flu shot this fall, or I will not get a flu shot this fall. In a third condition, participants were asked to choose between two options: I will get a flu shot this fall to reduce my risk of getting the flu and to save $50, or I will not get a flu shot this fall even if it means I may increase my risk of getting the flu, and I do not want to save $50.
Results showed that while only 40 per cent of employees who intended to get a flu shot in the first condition, that number increased to about 61 per cent when they were explicitly asked to make a choice between getting or not getting one — and further to 75 per cent when the benefits of getting the flu shot and the cost of not getting the shot were highlighted. These changes were achieved simply by changing the language of email communication.
Likewise, research has shown that sending participants reminders, especially if those reminders are behaviourally informed (e.g. providing a link to a task that needs to be completed) increases the likelihood that employees will finish the task. Elsewhere, researchers have shown that making communication simpler, chunking information, making it action-oriented and including implementation prompts increases its effectiveness.
In the training domain, research in areas as diverse as financial well-being, implicit bias and managerial decision-making has shown that merely educating people does not guarantee better outcomes. Education should be just-in-time, should incorporate practice and learning from feedback, and be complemented by prompts to encourage follow-up action if it is to be effective. This rich literature has implications for the design and delivery of training programs within organizations.
Marketing departments around the world are implementing behavioural interventions such as changing defaults and changing the framing of communication to influence the behaviour of their customers. And governments from Canada to the UK have been quick to embrace behavioural insights in designing programs and policies that span the spectrum from welfare, tax and privacy to health and environmental conservation.
Human resource managers often deal with complex enterprise-wide challenges: building employee engagement, making the organization more welcoming and inclusive, being seen as a fair and transparent workplace, and — eventually — being recognized as an employer worth working for. These might each seem like lofty and complex challenges, but all can be decomposed into very specific behaviours that need to be changed.
By building a culture of taking complex outcomes, breaking them down into specific behaviours, identifying the behaviour change challenge and the friction that could impede it, building interventions and testing them before implementing and scaling, human resource management could be the next frontier to successfully harness and embed behavioural insights into its operations.
Dilip Soman is the Canada Research Chair in Behavioural Science and Economics and Director of the Behavioural Economics in Action Research Centre (‘BEAR’) at the Rotman School of Management. His latest book is Behavioural Science in the Wild (Rotman-UTP Publishing, 2022), which he coedited. He is the author of The Last Mile: Creating Social and Economic Value from Behavioral Insights (Rotman-UTP, 2017). A longer version of this article appeared in the NHRD Network Journal.
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