By Kurt Nelson, Ph.D. & Ben Granlund

Imagine getting the chance to earn $2 for doing absolutely nothing. Would you turn this down?  Most people say no, yet study after study shows that people often refuse the $2 payout, sometimes more.

You’re probably wondering, “why?”

This strange behavior comes down to how we perceive fairness and retribution and can be observed in a simulation behavioral scientists call “the Ultimatum Game.”

In the Ultimatum Game, there are two players.

  • Player one (the proposer) is given $10 and told that they must give some portion of that money to player two (the responder), who then either accepts or rejects the offer. 
  • If the responder accepts the offer, both players get to keep their money. 
  • If the responder rejects the offer, both players get nothing.

Economically speaking, the responder should be accepting all offers, regardless of how little player one is offering them. Whether the offer is a penny, a dime, a quarter or a dollar – they are better off financially than when they started. However, study after study shows that if the offer is under 30% (i.e., $3 in this case), most responders reject the offer. Some even reject it if the offer is any less than an even split (i.e., $5 in this example).   

It is hypothesized that these rejections happen because the responders feel that the proposer is being unfair. This perceived unfairness is so powerful that they would rather punish that person for it than to earn the amount that is being offered.

This happens even when the stakes are higher, for example, if the total amount is $100 and the offer is $20. 

So why is this important? 

Rory Sutherland, the Vice Chairman of the Ogilvy Group and the founder of their Behavioral Science Division, puts it this way, “Humans don’t understand humans.” We think we understand them, but in reality, we do a pretty poor job at it.  

People don’t always act in ways that economists would predict; in fact, we often make decisions that are not in our best financial interest. 

A lot of what drives human behavior happens at the subconscious level, and we don’t always act rationally. Yet, businesses often design their products, marketing, incentives, HR and performance management practices, employee programs, training and more as if we were purely rational beings.

This is where behavioral science comes into play.

Developing an understanding of behavioral science helps companies recognize these nuances along with the impacts that they have on the business. Doing so can help them improve the effectiveness of their programs, have more motivated employees, and increase their financial well-being,

Well… what is Behavioral science?

If you’ve found yourself here through our brilliance community, then chances are, you’re already in the know. If you’re new to behavioral science, then welcome to the community! You can join our monthly bulletin here for more great insights.

Behavioral science is an interdisciplinary field of research that draws insights from psychology, sociology, economics, neuroscience, anthropology, and a mix of other social sciences. It is ultimately the study of human behavior and answers the question, “why do we think and behave the way that we do?”

Behavioral scientists don’t look at humans as fully rational economic beings. They understand that we have limited attention spans, complex motivations, respond to emotions, use mental short-cuts and heuristics, make decisions based on what others are doing, and a host of other factors that impact what we do.

Behavioral scientists explore these quirks in our behavior, why they occur, and what the impacts of them are. 

And what does this have to do with Business?

Increasingly, companies are using behavioral science to help them succeed. A number of companies are even building internal behavioral science teams. Big names such as Google, Walmart, Airbnb, Uber, Clover Health, Microsoft, Mercer, Maritz, and Lemonade Insurance all have behavioral science teams as part of their organization. 

Additionally, more and more companies are turning to external consultancies like us, The Lantern Group, or groups such as Ideas 42, BE Works, and others to help them navigate and understand how behavioral science is impacting them.  

Up until recently, much of the emphasis on applying behavioral science to organizations focused on customers and consumer marketing. Understanding what drives human behavior has been at the core of marketing and advertising for over a century. However, in the past five years, there has been an increased focus on using behavioral science insights inside organizations themselves to improve the employee experience and increase productivity.  

While the application of behavioral science is almost unlimited inside organizations, we find five key areas where its impact can be greatest. 

  1. Employee engagement. 

    Behavioral science gives us a glimpse into the engine that is driving our motivation and engagement. Unlike guesswork and outdated methods for motivating employees, behavioral science lets us explore the underlying reasons why employees get engaged — understanding this fundamental insight into “the why” allows us to design better work experiences and increase the overall health of the business. Not only does this create a more motivated and happier workforce, it inversely creates a healthier and more successful company.

A recent Gallup study showed that up to 85% of employees are disengaged.

The companies are still functioning, but it’s kind of like riding a bicycle with a rusty chain, it might get you where you need to go but it probably won’t be fun, quiet, or efficient. Behavioral science is the WD-40.

extrinsic and intrinsic motivators

It’s about understanding both the extrinsic and intrinsic motivators that drive the workforce. It’s understanding that higher pay doesn’t always mean higher enjoyment, although it can in the right setting. It’s about analyzing the behavioral nuances of each situation and understanding if a hedonic or eudemonic motivator is the right course of action to drive engagement.

Behavioral science helps us answer those questions and ultimately drive more motivated employees.

  • Culture
    attract and retain employees
    Culture is the glue that binds an organization together, yet, in the U.S., it is estimated that many companies double there hiring costs every year due to a poor or misaligned culture. Culture helps drive the behaviors of your employees, both positive and negative.

    Behavioral science provides a lens through which to view those behaviors and to understand how a company’s culture is directly impacting its workforce, their motivations, their loyalty, their happiness and more.

We understand that small changes in how information is presented and framed can have a significant difference in how it is interpreted and acted upon.

Culture is no different, incremental changes that directly tap into the human behaviors at play can vastly increase an organization’s overall well-being. Tapping into the nuances of behavior can help adjust a broken culture and, inversely, solve employee issues to retain more motivated employees – in essence, it can diminish those hiring costs.

  • Team dynamics

    Most work within organizations these days is done in teams and much of the consternation of employees stems from poor team dynamics. Understanding why people do what they do, how they respond to social structures, and what drives them are powerful tools to build better teams.

Using these insights to capitalize on the social norms that drive team interactions can help companies improve how people interact and perform within their team.

Additionally, training managers (see leadership practices below) and employees to understand why people do what they do helps create higher function teams with less friction. In short, behavioral science helps create better teams, and better performing teams mean a stronger performing company.  

Additionally, training managers (see leadership practices below) and employees to understand why people do what they do helps create higher function teams with less friction. In short, behavioral science helps create better teams, and better performing teams mean a stronger performing company.  

  • Workplace design and environment

    Ever wonder why people tend to congregate near the wall in large open spaces, or why certain spaces tend to drive better social Corporate office designsinteraction? How about the correlation between those factors and worker productivity? You might think that architecture and design should be left to the architects and interior designers. And while yes, it is vital to have those experts, it is also important to understand that the environment that we work in contributes significantly to how we feel and perform at work.
 

While not necessarily a corporate environment, in a study following patients after surgery, a direct correlation was found between the design of the hospital room and the amount of pain medication consumed.3

Think about what these insights could mean in a business environment. Environmental nudges and better office designs that account for the human behavioral factors they impact can lead to healthier, happier employees, and ultimately a more productive workforce. The human response to space and to process is a key part of behavioral science that can be a significant win for organizations.

  • Leadership practices

    Becoming a better business leaderLeaders that understand how their words, actions, and behaviors impact their employees on a subconscious level can perform better than those who are blind to those responses. They tend to have better conversations, garner more respect from those that they manage, and inevitably build stronger teams. Stronger teams correlate to healthier and better-performing companies.

Once again, behavioral science provides a way for leaders to gain insight into how people perceive, interpret, feel, and process information along with an understanding of how those factors influence how people make decisions.

Studies have shown that direct managers are the most trusted people within an organization and making an investment in their behavioral understandings can drive incremental change that permeates through the company. By teaching leaders how to look at the world through a behavioral lens, companies can improve their overall performance. 

In essence, understanding human behavior and applying behavioral science to business is one of the core resources organizations must tap into to take their business to the next level. In the competitive world of today’s business environment where the rise and fall of public image, and even value, can be impacted in seconds by a single tweet, taking the care to understand the workforce is pivotal. The companies that invest in recognizing the oddities of human behavior, our motivators and the irrationalities of decision making will thrive, while those who do not will get left behind.

Contact us in the form below or email us at behavior@lanterngroup.com to start using behavioral science to better your organization today.

Like this content? Please share or join our bulletin for more great monthly insights.

Blog Footer Form


___________________________________________

  • Toshio Yamagishi, Yutaka Horita, Nobuhiro Mifune, Hirofumi Hashimoto, Yang Li, Mizuo Shinada,Arisa Miura, Keigo Inukai, Haruto Takagishi, Dora Simunovic (2012), Rejection of unfair offers in the ultimatum game, Proceedings of the National Academy of Sciences Dec 2012, 109 (50) 20364-20368; DOI: 10.1073/pnas.1212126109
  • Knight, S.J.G., 2012. Fairness or anger in ultimatum game rejections. Journal of European Psychology Students, 3(1), pp.2–14. DOI: http://doi.org/10.5334/jeps.an
Business marketing advertising sales managers