Behavioural Decision Making – Lieven Brebels
Workshop 1: Behavioral decision-making (07/10)
1. First read the Ratner et al. paper (in the Toledo folder): It will tell you more about the concept of
“nudging”, and also introduce you to the epistemic philosophy of “libertarian paternalism” that
underlies it. Much behavioral decision research has informed marketing practices to influence
consumer behavior. Interestingly, much of this research bears important implications for general and
HR management too, but it has not yet been equally applied to these domains. Thus, this paper talks
about ‘consumers’, but while reading I want you to each time replace ‘consumers’ with ‘employees’
and think of possible analogous examples that are relevant to how managers can lead by designing
the context in which their employees make decisions or alternatively how subordinates can lead by
designing the context in which their managers make decisions. Make sure that you can provide at
least one example and explain it to your fellow students in the group during the workshop, and that
you understand the conceptualization this paper makes about the ethics of libertarian paternalism,
but this time applied to employees or leaders in the organization rather than consumers (as the
paper does).
→ 2.4 Processing difficulties: Individuals have limited cognitive capacity, and cognitive overload can occur
when there are too many tasks competing for finite cognitive resources. people can become too “burnt out” to
devote sufficient cognitive resources to important decisions.
You should make sure that your employees don’t have too much to worry about, so make sure you
enough personnel so that everyone has a clearly defined job and that 1 person doesn’t have to do
the job of 2 people. So, you don’t overload them.
→ A common suggestion for helping people in these situations is to simply inform them: if they know, they
will do. In particular, research by Gollwitzer and colleagues (Gollwitzer 1999; Gollwitzer et al. 1990) indicates
that having a plan facilitates movement from fuzzy goals to goal implementation. And there is evidence that
this approach can be effective. Lusardi et al. (2007) found that university staff were motivated to save for
retirement, but many did not know how to enroll in a retirement fund. They seemed to think the process was
more complex than it actually was. When employees were provided with seven simple steps walking them
through the enrollment process and emphasizing the ease of enrollment, participation in the university's
matched individual retirement fund program increased from 7.3% to 21.7%.
Have clearly defined goals for the end of a period, and make sure to have a simplistic way of
visualizing the steps to be taken or make sure everyone knows what their job is.
➔ delegate in a smart way.
*Maybe also in eg cafetaria: placing healthy food first (in the line-up) → more likely to be picked.
2. Subsequently, read the Mols et al. paper (in the Toledo folder) This paper puts the concept of
“nudging” in a broader perspective, and critically discusses it from an ethical point of view, as well as
offers an alternative. I want you to make sure that you understand the points that this paper makes
to and subsequently reflect about its implications for leadership and behavioral decision-making in
an organizational context.
1
,1. Different modes of governance
• Hierarchy: promoting or preventing behavior by instilling fear about penalties for non-
compliance
o Yet: very weak correlations between sanctioning and compliance
• Markets: tapping into people’s eagerness to maximize financial gains
o Imperferct because human rationality is bounded; transactional leadership
• Networks: allowing stakeholders to regulate and self-monitor
• Persuasion: transforming people’s belief system so that the desired behavior emerges from new,
deeply held convictions
o see transformational leadership
• Nudging: altering people’s behavior in predictable ways (based on behavioral science) without
forbidding any options or changing economic incentives
• Management (& transaction leadership) = Hierarchy & Markets.
• Leadership (transformation leadership, trying to transform the beliefs to change behavior,
influencing people (goals)) = Persuasion & Network.
• Libertarian paternalism = Nudging.
1.1 Management: the example of a fine
Good example: PUNISHMENT AND BEHAVIOR: the
graph with fines
→ people changed their relationship with the
kindergarten owners from social (caring) to
economical (business transaction). After the fine
got taken away, the behavior didn’t change
anymore, it stayed. Once the norms are changed it’s
too hard to return to the social relationship.
2. Sanctions and cooperation
But: holds for weak sanction system (low detection
probability and/or penalty sizes), but not necessarily for
strong sanctioning systems
Signaling: Sanctions signal to people the kind of decision
that they think they are making
• Strength of a sanction system & what it does to cooperation, with a sanction system they believe
they’re making a business decision, if no sanction system they believe they’re making an ethical
decision.
• In a strong system; the penalty is high and the chance of being caught is high, then there will be
more cooperation.
• Weak system: less cooperation than without a system, so better to not have it.
• Kinda expensive to have a strong system because you need a lot of staff to control.
2
, But: holds for weak sanction system (low
chance of getting caught and/or no strong
sanction), but not necessarily for strong
sanctioning systems (chance of caught is
high and/or sanction is strong)
Three studies are used to examine how
surveillance and sanctioning systems affect
cooperative behavior in dilemma
situations. The first two studies
demonstrate that a weak sanctioning
system results in less cooperation than no
sanctioning system; furthermore, results
from the second study suggest that
sanctions affect the type of decision
people perceive they are making,
prompting them to see it as a business
rather than an ethical decision. The results from these studies are used to develop a theoretical
model that postulates that the relationship between sanctions and cooperation is due to both a
signaling effect, in which sanctions influence the type of decision that is perceived to be made, and a
processing effect, in which the decision processing, including whether or not the strength of the
sanction is considered, depends on the decision frame evoked. A third study provides support for the
processing-effect hypothesis
2.1 Hidden costs of sanctioning systems: trust in others
• Explanatory mechanism: Trust in others decreases after experiencing a
sanctioning system (“others only contributed for extrinsic reasons, because
of the sanction system”) – this is what a sanction system communicates
• Sanctions decreased cooperation only among those with high initial trust
levels (motivation crowding out)
• E.g. with corona, many rules but no hard sanctions.
o If strong system, we would lose our trust in people we see people comply simply bc
of the system.
2.2 What determines support for sanctioning systems?
1. When there is no sanction system, people are less supportive of installing a sanction system,
except when there is collective failure
o if no SS in place, but the group fails to meet its goals, collective failure, then people are in
favor of installing a SS.
2. When there is a sanction system, people are more supportive of it regardless of feedback
3. Interestingly, the same paper also revealed that the presence of a sanctioning system increased
pessimism about attaining collective success.
4. Thus, suggests that the mere presence of a sanction system creates
the need to have one, and that installing one can have irreversible
consequences
3
Workshop 1: Behavioral decision-making (07/10)
1. First read the Ratner et al. paper (in the Toledo folder): It will tell you more about the concept of
“nudging”, and also introduce you to the epistemic philosophy of “libertarian paternalism” that
underlies it. Much behavioral decision research has informed marketing practices to influence
consumer behavior. Interestingly, much of this research bears important implications for general and
HR management too, but it has not yet been equally applied to these domains. Thus, this paper talks
about ‘consumers’, but while reading I want you to each time replace ‘consumers’ with ‘employees’
and think of possible analogous examples that are relevant to how managers can lead by designing
the context in which their employees make decisions or alternatively how subordinates can lead by
designing the context in which their managers make decisions. Make sure that you can provide at
least one example and explain it to your fellow students in the group during the workshop, and that
you understand the conceptualization this paper makes about the ethics of libertarian paternalism,
but this time applied to employees or leaders in the organization rather than consumers (as the
paper does).
→ 2.4 Processing difficulties: Individuals have limited cognitive capacity, and cognitive overload can occur
when there are too many tasks competing for finite cognitive resources. people can become too “burnt out” to
devote sufficient cognitive resources to important decisions.
You should make sure that your employees don’t have too much to worry about, so make sure you
enough personnel so that everyone has a clearly defined job and that 1 person doesn’t have to do
the job of 2 people. So, you don’t overload them.
→ A common suggestion for helping people in these situations is to simply inform them: if they know, they
will do. In particular, research by Gollwitzer and colleagues (Gollwitzer 1999; Gollwitzer et al. 1990) indicates
that having a plan facilitates movement from fuzzy goals to goal implementation. And there is evidence that
this approach can be effective. Lusardi et al. (2007) found that university staff were motivated to save for
retirement, but many did not know how to enroll in a retirement fund. They seemed to think the process was
more complex than it actually was. When employees were provided with seven simple steps walking them
through the enrollment process and emphasizing the ease of enrollment, participation in the university's
matched individual retirement fund program increased from 7.3% to 21.7%.
Have clearly defined goals for the end of a period, and make sure to have a simplistic way of
visualizing the steps to be taken or make sure everyone knows what their job is.
➔ delegate in a smart way.
*Maybe also in eg cafetaria: placing healthy food first (in the line-up) → more likely to be picked.
2. Subsequently, read the Mols et al. paper (in the Toledo folder) This paper puts the concept of
“nudging” in a broader perspective, and critically discusses it from an ethical point of view, as well as
offers an alternative. I want you to make sure that you understand the points that this paper makes
to and subsequently reflect about its implications for leadership and behavioral decision-making in
an organizational context.
1
,1. Different modes of governance
• Hierarchy: promoting or preventing behavior by instilling fear about penalties for non-
compliance
o Yet: very weak correlations between sanctioning and compliance
• Markets: tapping into people’s eagerness to maximize financial gains
o Imperferct because human rationality is bounded; transactional leadership
• Networks: allowing stakeholders to regulate and self-monitor
• Persuasion: transforming people’s belief system so that the desired behavior emerges from new,
deeply held convictions
o see transformational leadership
• Nudging: altering people’s behavior in predictable ways (based on behavioral science) without
forbidding any options or changing economic incentives
• Management (& transaction leadership) = Hierarchy & Markets.
• Leadership (transformation leadership, trying to transform the beliefs to change behavior,
influencing people (goals)) = Persuasion & Network.
• Libertarian paternalism = Nudging.
1.1 Management: the example of a fine
Good example: PUNISHMENT AND BEHAVIOR: the
graph with fines
→ people changed their relationship with the
kindergarten owners from social (caring) to
economical (business transaction). After the fine
got taken away, the behavior didn’t change
anymore, it stayed. Once the norms are changed it’s
too hard to return to the social relationship.
2. Sanctions and cooperation
But: holds for weak sanction system (low detection
probability and/or penalty sizes), but not necessarily for
strong sanctioning systems
Signaling: Sanctions signal to people the kind of decision
that they think they are making
• Strength of a sanction system & what it does to cooperation, with a sanction system they believe
they’re making a business decision, if no sanction system they believe they’re making an ethical
decision.
• In a strong system; the penalty is high and the chance of being caught is high, then there will be
more cooperation.
• Weak system: less cooperation than without a system, so better to not have it.
• Kinda expensive to have a strong system because you need a lot of staff to control.
2
, But: holds for weak sanction system (low
chance of getting caught and/or no strong
sanction), but not necessarily for strong
sanctioning systems (chance of caught is
high and/or sanction is strong)
Three studies are used to examine how
surveillance and sanctioning systems affect
cooperative behavior in dilemma
situations. The first two studies
demonstrate that a weak sanctioning
system results in less cooperation than no
sanctioning system; furthermore, results
from the second study suggest that
sanctions affect the type of decision
people perceive they are making,
prompting them to see it as a business
rather than an ethical decision. The results from these studies are used to develop a theoretical
model that postulates that the relationship between sanctions and cooperation is due to both a
signaling effect, in which sanctions influence the type of decision that is perceived to be made, and a
processing effect, in which the decision processing, including whether or not the strength of the
sanction is considered, depends on the decision frame evoked. A third study provides support for the
processing-effect hypothesis
2.1 Hidden costs of sanctioning systems: trust in others
• Explanatory mechanism: Trust in others decreases after experiencing a
sanctioning system (“others only contributed for extrinsic reasons, because
of the sanction system”) – this is what a sanction system communicates
• Sanctions decreased cooperation only among those with high initial trust
levels (motivation crowding out)
• E.g. with corona, many rules but no hard sanctions.
o If strong system, we would lose our trust in people we see people comply simply bc
of the system.
2.2 What determines support for sanctioning systems?
1. When there is no sanction system, people are less supportive of installing a sanction system,
except when there is collective failure
o if no SS in place, but the group fails to meet its goals, collective failure, then people are in
favor of installing a SS.
2. When there is a sanction system, people are more supportive of it regardless of feedback
3. Interestingly, the same paper also revealed that the presence of a sanctioning system increased
pessimism about attaining collective success.
4. Thus, suggests that the mere presence of a sanction system creates
the need to have one, and that installing one can have irreversible
consequences
3
