Rotman Management Spring 2017

AT ITS CORE, every organization is in the same business: changing behaviour. For-profit companies try to sway consumers to buy their products; governments try to convince citizens to pay their taxes on time; and an NGO might want to encourage families to sign up for tuition support for their children. Unfortunately, in most cases, leaders spend too much time on the initial stages of the behaviour-change process: analyzing the market, creating a strategy, and developing a product or service. They pay far too little attention to what Rotman Professor Dilip Soman — who heads up Behavioural Economics in Action at Rotman (BEAR) — calls ‘the Last Mile’. This, he says, is where ‘the rubber hits the road’: Whether it happens online or in a brick-and-mortar environment, it is where the consumer…

FROM REVENUE COLLECTION to trade policy to infrastructure investment, the varied mandates of government are complicated and diverse. Yet at its core, the role of government is simple: To maximize the welfare of citizens by improving their wellbeing, creating fair and efficient marketplaces and planning for the future. Governments attempt to accomplish this by helping citizens, organizations, their own agencies and local businesses make good choices. As such, the government — just like every other organization that exists — is in the business of behaviour change. Indeed, almost every activity that a government undertakes boils down to the need to encourage or discourage certain behaviours. There are four particular types of behaviour change that policymakers focus on: 1. COMPLIANCE. Getting people and businesses to behave in accordance with prescribed standards and by…

You have described the goal of your research over the last 40 years as follows: “To introduce humans into Economics.” Please explain. The truth is, the people who populate Economics textbooks bear very little resemblance to the humans we interact with on a daily basis. Standard economic models describe people who are as smart as the smartest economist, who are not affected by emotion, and who have no issues with self-control. That’s ‘Homo Economicus’; I call them ‘Econs’ for short — and I truly don’t know anybody like that. In reality, we do not have perfect willpower and we don’t always choose what is best for us — which is why obesity and insufficient retirement savings are so common today. You have said that Daniel Kahneman and Amos Tversky’s Prospect Theory provides…

Dr. David Rock and his colleagues at the Neuroleadership Institute have developed the SEEDS Model, which shows that biases fall into five key categories. Below are samples for each catagory. SIMILARITY BIASES In-group Bias: Perceiving people who are similar to you (in ethnicity, religion, socioeconomic status, profession, etc.) more positively. (“We can trust her; her hometown is near mine.”) Out-group Bias: Perceiving people who are different from you more negatively. (“We can’t trust him; look where he grew up.”) EXPEDIENCE BIASES Confirmation Bias: Seeking and finding evidence that confirms your beliefs and ignoring evidence that does not. (“I trust only one news channel; it tells the truth about the political party I despise.”) Halo Effect: Letting someone’s positive qualities in one area influence overall perception of that individual. (“He may not know much about people, but…

WHEN ECONOMICS WAS FIRST IDENTIFIED as a distinct field of study in the late 19th century, Psychology did not yet officially exist as a discipline. Nevertheless, many economists moonlighted as the psychologists of their times. Adam Smith, best known for The Wealth of Nations, wrote a less well-known book, The Theory of Moral Sentiments, which laid out psychological principles of individual behaviour that are arguably as profound as his economic observations. The book is bursting with insights about human psychology — many of which presage current developments in Behavioural Economics. For example, Smith commented that “We suffer more... when we fall from a better to a worse situation, than we ever enjoy when we rise from a worse to a better.” Loss aversion! Research in the field of behavioural decision research —…

IN CASE YOU HAVEN’T NOTICED, we are in the midst of a renaissance in artificial intelligence (AI). Major tech companies like Google, Facebook, Amazon, Microsoft, Tesla and Apple are prominently including AI in their product launches and acquiring AIbased startups by the dozen. At one end of the spectrum are people who view this as an augmentation of human labour, and on the other, those who see it as a replacement of human labour—with the consequent followon logic of excitement to fear. In both cases, proponents point to an advance — an AI that plays Go, or one that can drive a truck — and define a future path by extrapolating from the human tasks that it enhances or replaces. Economic history has taught us that this is a flawed approach. Instead,…