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Do Behavioral Nudges Work on Organizations?

Behavioral economics has shown that nudges can be used to help individuals act in their best interests. But can you apply similar tools to change organizational behavior?

Written by: Nina Mažar, Nicole Robitaille, Julian House
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More than a decade of research in behavioral economics has taught us that individuals are “nudge-able.” The design of seemingly small contextual factors — such as simplification and planning prompts that clearly articulate the when, where, and how of action — can be used to induce individuals to act in their best interests in a variety of areas, including their health, their finances, and their education.

Yet, despite the breadth of insights on how to improve individuals’ behaviors, we know relatively little about how, or even whether, such tools influence organizational behavior. Should we expect organizations to respond any differently to nudges?

Behavioral economics has taught us that human behavior is context dependent, and researchers in the fields of social psychology and organizational behavior have studied the many ways in which group contexts can amplify some psychological processes and diminish others. On the one hand, organizations are subject to competitive pressures, which incentivize profit maximization, and they can put in place cognitive supports, like training, bureaucratization, and technology to help employees make better decisions. This might lead us to predict that organizational decision making is already sufficiently optimized and a nudge will provide little to no additional help. On the other hand, phenomena like groupthink, polarization, diffusion of responsibility, and social loafing are biases that uniquely afflict group decision-making, suggesting that the nudges which work for individuals may be a poor fix for what can cause organizations to go off course.

To help address the question of organizational nudge-ability, we collaborated with the Ministry of Finance in Ontario. Our research focused on organizations that failed to file an annual payroll tax return. Typically, the finance ministry informed delinquent organizations by mail one week after their due date that that their tax return has not been received and reminded them to file the return immediately to prevent further actions. The letter assumed that organizations simply forgot or were procrastinating because they did not take the delinquency seriously enough. So we tested one modification to this standard late-filing notice to see if it would help overcome this type of inaction.

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