What can Behavioral Economics Teach us about People Analytics?

Ben Teusch / Posted On: 25 October 2021 / Updated On: 27 September 2022 / International Thought Leaders / 99

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What can Behavioral Economics Teach us about People Analytics?



I’m optimistic about the growth of people analytics. Experts believe it will grow exponentially in the near future, and HR leaders are beginning to see the value of using data to help make business decisions.

 

It wasn’t always this way. Josh Bersin, an HR thought leader and founder of Bersin by Deloitte, says people analytics has been around since the 1990’s in some form. Only recently has it become widespread. Behavioral economics, the study of how decision-making is affected by psychological factors, followed a similar path. Although at one point behavioral economics was dismissed by economists and policymakers, its principles have now been adopted by the US and UK governments. People analytics has the same bright future in the business world, but to become as mainstream as behavioral economics has become, traditional HR leaders still need to be convinced.


The Growth of Behavioral Economics…

What behavioral economics has done for the academic and governmental arenas is similar to what people analytics has done for the business world. In his recent book, Misbehaving, the Chicago economist Richard Thaler describes his role in developing and evangelizing the field of behavioral economics. It began when he noticed inconsistencies between economic predictions of human behavior and how humans actually behave. He spent many years using evidence to convince traditional economists that their hunches and theories might not be true.

 

Today, behavioral economics uses people-related data to optimize decision-making and solve problems in public policy: kids eat more vegetables if recess is before lunch instead of after; people are more likely to pay their taxes if you tell them that everybody else is doing it. Economists are beginning to look for evidence to support their recommendations and predictions, rather than relying on their assumptions.

 

…is Similar to the Growth of People Analytics

If you work in people analytics, this story should sound familiar to you. Instead of focusing on public policy, people analytics uses people-related data to optimize decision-making and solve problems in business. People analytics pioneers noticed inconsistencies between HR theories about employee behavior and research about how employees actually behave. Analysts and academics spent years convincing traditional HR leaders that their hunches and theories might not be true – or could at least be refined with some additional information.

 

To continue the comparison, today people analytics has been used to optimize businesses: at one firm, shifting compensation dollars to the highest performers dramatically improved retention without increasing payroll; Google emails managers of new employees an onboarding checklist, increasing productivity for the whole workforce by 2 percent; at Bank of America call centers, aligning team coffee breaks increased call completion speed by 23 percent and decreased turnover from 40 percent to 12 percent, compared to teams with staggered breaks.

 

Growing the Field and Gaining Acceptance

How did Thaler and other behavioral economists create a new field? The tools and data they used weren’t unique or overly complicated, but they used the data to gather evidence that challenged traditional ideas. Once they had some evidence, they showed it to other economists, and some of them were convinced. Eventually, they were able to influence and convince policymakers – people with the ability to make real decisions. For example, President Obama signed an executive order in September 2015 to create the Social and Behavioral Sciences Team, using “behavioral science insights [to] support a range of national priorities.” Economics will never be the same.

 

As people analytics has grown, analysts have also challenged traditional ideas, gathered evidence, and convinced some HR leaders. However, many more of the largest companies’ leaders, and many HR line managers, remain unconvinced. Most of the spread of people analytics remains among those who came from non-HR backgrounds, or were already analytically minded and needed little convincing. We’re talking to ourselves – and in most companies, HR is still the same.

 

What’s Next for People Analytics?

For people analytics to extend as far as behavioral economics has, traditional HR leaders, need to be influenced. The HR function has not historically been a stronghold of analytical rigor, and in many conversations with HR leaders at Cornell’s ILR School, I’ve learned that most executives feel that HR has a long way to go before it will be able to fully embrace analytics.

 

That may be true, but if my classmates are any indication, we can expect the next wave of HR leaders and business partners to be knowledgeable about how people data can be used to solve business problems, and willing to put resources into building people analytics teams where they don’t already exist. Persuading these future leaders to use analytics won’t be hard.

 

Soon, businesses will embrace people analytics, just like economics departments and world leaders have embraced behavioral economics.

 

That’s why I’m optimistic about the growth of people analytics.

 

The post "What Can Behavioral Economics Teach us about People Analytics?" was first published by  Ben Teusch here  https://www.linkedin.com/pulse/what-can-behavioral-economics-teach-us-people-analytics-ben-teusch/

 

About Ben Teusch

People Analytics at Facebook

I work with leaders to identify and answer their most important organizational questions and make the results easy to understand so they can make informed decisions. I enjoy teaching others how to do the same. You can read what I've written about people analytics at www.teuschpa.com.


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