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How do you use Nudge (behavioral science) in risk management?

Interesting presentation by Harvard Law School Professor Cass R. Sunstein on using behavioral science to change behavior:

From Behavioral Economics to Public Policy

He co-authored the book Nudge.

Cass Sustein
Cass Sustein

It is becoming increasingly necessary in risk management and business continuity management to be better, faster, and cheaper. We need to better Return on Investment (ROI), better participation, better end-user experience, faster change, greater reach and adoption, and enhanced techniques and concepts. We need people to do more with less and with higher quality and participation.  To accomplish any of this we need behavioral science.

At Lootok, we integrate many of today’s cognitive and behavior sciences in what and how we do risk management and business continuity management. For example, over the years we have developed Lootok Demand Model ®, Lootok Experience Model ™, and Lootok Activity Base Data Collection and Analysis Model (ABdCa)®. We work with global leaders to transform their programs from an initiative / cost center to running it like a business. We are obsessed with creating successful sustainable programs.

Few lessons from Cass’s presentation

Behavioral Science and Nudge Working Together

  1. Save more tomorrow - don’t ask for money from existing budget; ask for increasing percentage of future budgets
  2. Make it easy - if it’s not working, don’t push. Instead simplify. Rather than forcing people, remove the obstacles
  3. Anchoring - people naturally have an ‘anchor’ when making decision. Change their anchor to guide their decision
  4. Social norms - socializing the social norm guides people’s decision. Works well with anchoring. Social norm can act as a default rule
  5. Default rule - automate decision such as opt-in / opt-in default. Defaults work well because of their inertia and the power of suggestion

Behavioral Objections

  1. People have limited attention span - we only see what we pay attention to
  2. People show “present bias” - we focus on today and tomorrow, future is forgotten
  3. People do not deal well with probability
  4. People are “loss averse” - pleasure of gain is less the the severity of a loss

Six Behavioral Policy Claims

  1. Default rules matter
  2. Incentives may not always matter (as much)
  3. Choice architecture is exceedingly important
  4. Choice architecture is not avoidable
  5. People can use a nudge
  6. Simplicity is very important

Enjoy! Sean