Editor's Note: Jacque Vilet explores the intersection of behavioral economics and benefits, and the questions that it raises, in this Classic post. How do feel about nudging?
Why do so many employees fail to exercise in spite of the well-known benefits of doing so? Why do employees skip medications that could prevent serious illness and improve their quality of life?
Behavioral economists rely on psychology to explain human behavior and they have a few theories.
One is "loss aversion" --- that is, the tendency to care more about the possibility of loss than the possibility of gain. This is important in explaining why it’s so difficult to encourage healthy lifestyles. There’s immediate loss when people switch their habits to eating less or exercising more. Let’s face it --- junk food tastes good and exercise is hard. The long-term gain --- better health --- doesn’t seem like a gain because it’s not immediate.
That may be why the wellness programs some employers offer have not produced the best results. Example: The promise of charging lower medical premiums if employees quit smoking (a future gain) and charging higher premiums to employees if they don’t quit (a future pain). According to a recent RAND study offering rewards after the fact has led to only modest behavior changes and limited cost savings.
By using the principle of “loss aversion” employers might be better off providing upfront rewards such as immediately charging lower medical premiums to people who commit to quit smoking. For employees who don’t live up to their commitment and quit, premiums are raised. This has proved to work in other situations.
Another theory is Kevin Volpp’s “automated hovering”. It’s a cost effective way to monitor patients and give feedback. Studies show that patients don’t always take their medication as prescribed following a serious illness. Even making it free may not be enough to motivate them.
Researchers are now using telemedicine tools to monitor patient behavior and encourage compliance with prescribed treatment. In experiments, patients who take their medication are eligible to win daily cash prizes. This practice recognizes the importance of immediate rewards.
A third theory is Thaler’s “choice architecture”. Thaler describes “choice architects” as those who help shape situations where people have to choose. They can be “nudged” to make decisions that are good for them. Example: At a cafeteria, the first thing in the line is the salad bar. That’s a good thing --- it’s healthy. If mac and cheese and French fries were placed at the beginning of the line, people might load up on them and not take any salad.
Back to employee benefits. Employees are being asked to become more involved in their own healthcare. Behavioral economics can offer insights into employee behavior which can be useful for Benefits professionals in designing benefit communications. Employee choice is important, but the need for help in understanding those choices is more important.
Marketing has long used choice architecture to nudge customers towards specific brand or product decisions. Consider a supermarket that puts certain brands or products on shelves at eye level versus on the lower shelves. Customers are nudged to take the ones on eye level. This technique is good for the company that wants more of its products sold.
There are, however, ethical questions to be considered when attempting to influence employee behavior. It’s one thing to nudge customers toward a certain brand of spaghetti sauce and quite another to nudge employees toward a specific medical plan.
To what extent should people be nudged into doing things that are good for them? In a free society, shouldn’t people be allowed to be obese, smoke, skip their medications, or choose questionable medical treatments?
Here’s the bottom line: We are all for employee rights to make their own benefit decisions. At the same time, we also want employees to make choices that are in their best interests. Behavioral economists say that as long as employees are allowed free choice --- both good and bad --- then it’s OK to help them make decisions that for their long term good. In other words, it’s OK to nudge.
Behavioral economics has intuitive appeal --- it seeks to work with human limitations instead of fighting against them. But there needs to be more research before employers launch into full-scale practice.
When all is said and done though, I still have a problem with nudging.
Jacque Vilet, President of Vilet International, has over 20 years’ experience in Global Human Resources with major multinationals such as Intel, Texas Instruments and Seagate Technology. She has managed both local/ in-country national and expatriate programs and has been an expatriate twice during her career. Jacque has the following certifications: CCP, GPHR, HCS and SWP as well as a B.S. and M.S in Psychology plus an MBA. She belongs to SHRM, Human Capital Institute and World at Work. Jacque has been a speaker in the U.S., Asia and Europe, and is a regular contributor to various HR and talent management publications.
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