The self-image of most managers and executives is characterised by reason-driven decisions with rational information and a brilliant mind. If this appeals to you, we regret to disappoint you. Behavioural economics has now disproved the idea that the majority of people make decisions consciously on the basis of complete information and for their own benefit. The model of homo economicus as an individual who maximises utility and makes rational decisions was scientifically buried by the psychologist and Nobel Prize winner David Kahneman. He took a fresh look at economics and psychology and brought the coolly calculating theoretical view of man into real life. Here, irrationality, convenience or cognitive distortions lead to wrong decisions that can be irrational, uneconomical and even to our own disadvantage – to err is human! Kahneman explains this with two competing mental systems in the human brain. Quick thinking (system 1) is our autopilot and acts impulsively, emotionally and spontaneously. This approach leads to quick and intuitive decisions. Slow thinking (system 2) is the planning and controlling system that carefully weighs up all possible parameters using logic and experience. This process requires concentration and takes time. According to Kahneman, our autopilot is very rigorous in most evaluation and decision-making situations.
Ambitious leadership becomes effective leadership
Harvard professor Cass Sunstein translates these scientific systems into images (information nudges) that evoke the appropriate associations in all of us: he compares system 1 with Pippi Longstocking, the red-haired whirlwind who makes the world just the way she likes it based on her intuition. He compares system 2 to Mr Spock, the first officer of the starship Enterprise. He thinks pragmatically and logically and can’t do much with emotions. So it’s a really exciting constellation in our mental cockpit, because there’s a bit of Pippi Longstocking and Mr Spock in all of us. And they usually work well together. However, when Spock the analyst fails to keep up with the intuitive Pippi, errors in reasoning, self-deception and distorted perceptions occur.
Nudging makes use of these distortions in decision-making behaviour. With small incentives, attention is directed and decision-making situations are designed in such a way that unconscious human behaviour patterns are guided in a more intelligent direction. This makes it easier for people to make better decisions and act in their own interests or in the interests of the company and society. For you as a board member and manager, this means not only relying on the management of the mind, but also skilfully addressing the unconscious and intuitive. Through nudging, you can initiate an astonishing change in the behaviour of colleagues, employees and yourself with very little effort. This is how ambitious leadership becomes effective leadership.
Provide information, not instruction.
The strength of nudging lies in the minimal intervention in decision-making processes. Instead of strict regulation, people always retain their freedom of choice. The Pippi in us doesn’t like bans at all. Effective nudges merely change the framework conditions for decisions, making it easier for those affected to behave wisely. This promises to have a lasting effect, especially in a business context, with the help of seemingly insignificant factors.
Simplicity in the presentation of information leads to faster decisions. Incidentally, this also applies to the place of provision. At Google, programmers have posted tips and new agreements for good coding & testing in the toilets – the best place to make sure they are actually read ☺. Breaking down complexity increases insight and therefore also the speed of decision-making (Pippi Longstocking and Mr Spock). And I’m sure you’ve all experienced how key anchor information can influence the course of a price negotiation. But beware! This nudge can also be used by the board of directors of the company you are controlling to modulate your perception and decision-making consistency. A similar effect can be achieved with social reference points, because Pippi Longstocking is not the only one who likes to measure herself against others. In this case, the more concrete the more effective. Do you want to encourage your colleagues or employees to actively participate in change? Then boost their motivation with small messages such as “Disagree today?” – whether digitally or in the real world of work, they will not fail to have an impact.
As a supervisory body with the right to shape change, you therefore have a wide range of options for harnessing the special power of behaviour management for companies and society. In the specific context of corporate culture and sustainable leadership, nudges can help in a very concrete way,
- provide better orientation for company-relevant decisions and help to deal better with the desired change (change management),
- better address responsibility (e.g. for compliance) and desired behaviour (e.g. in terms of sustainability).
- behaviour (e.g. in terms of sustainability).
Within these guidelines, decision-making situations can be shaped and decision-making processes supported or convictions reinforced. In the following checklist, we have summarised which nudging categories are specifically relevant for your work as a supervisory board and what scope they offer.
Previously published:
Leadership by Nudging (1) – Triggering better decisions with behavioural sciences
Sources
Think fast. Slow thinking. Daniel Kahneman (Penguin 2016)
Nudge: How to nudge smart decisions. Richard H. Thaler and Cass R. Sunstein (ECON 2022) Corporate Nudging. Christoph Harff and Christopher McLachlan (Haufe 2021)