Behavioural Economics when it comes to business

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Put simply, behavioural economics looks at how people actually make decisions. It combines psychology, emotions, cognitive processes, and cultural influences to explain why individuals think and act the way they do rather than assuming everyone behaves in a purely rational way.

This decision might start with learning about environmental benefits through documentaries, be influenced by cultural factors, and be shaped by personal emotional values. Each person’s choice will differ depending on the experiences and influences available to them.

These same factors don’t just shape lifestyle choices they also influence how people make decisions in business and at work. Behavioural economics recognises that every decision is affected by human thought, emotion, and social context.

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Behavioural Economics vs Classical Economics

To fully understand Behavioural Economics, it’s helpful to compare it with classical economics. Classical economic theory suggests that markets are largely self regulating, naturally moving between periods of recession and growth. According to ideas such as Say’s Law, changes in wages, prices, and interest rates allow the economy to balance itself.

Behavioural Economics takes a different approach. Rather than focusing solely on financial mechanisms, it emphasises human behaviour including altruism, bias, emotion, and perception. From this perspective, economic outcomes are shaped less by abstract systems and more by the decisions individuals make.

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Performance Platforms

In recent decades, many organisations have introduced performance platforms designed to motivate employees through psychological and sometimes tangible rewards. These can include earning points through incentive schemes or receiving public recognition from colleagues.

The purpose of these platforms is to help employees feel valued. This has become especially important with the rise of remote and hybrid working, where everyday recognition is less visible. Feeling appreciated plays a key role in employee satisfaction and retention.

Considering the principles of Behavioural Economics is crucial for talent retention, as you can only retain your best employees if they feel valued and that their compensation meets their output. If it doesn’t it’s a fast-track for them moving elsewhere.

Behavioural economics can also guide business strategy. When pitching an idea to a client or presenting internally, understanding how people think and respond can lead to better outcomes. Much like using rhetoric logos, pathos, and ethos behavioural economics helps you connect with your audience on a deeper level and anticipate objections or concerns before they arise.

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Why Does This Matter?

While the economy may regulate itself to some extent, behavioural economics reminds us that human actions still have a significant impact. For example, an employer choosing to pay above the standard market rate may be influenced not just by economic logic, but by values such as fairness, morale, and loyalty.

This is why it’s important to consider both classical and behavioural economics when making decisions. Numbers matter, but so do people. After all, the economy isn’t run by systems alone; it’s governed by human beings.

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Photo by Steve Johnson on Unsplash