You’ve probably heard of using behavioural economics to encourage people to make better investment decisions, but can it apply to health and wellness decisions, too? Eric Parmenter, vice-president, employer solutions with Evolent Health, thinks so.
In an ISCEBS Symposium presentation on Monday, he explained how behavioural economics—the study of how people make decisions, which draws on insights from both economics and psychology—affects health benefits.
“Many health and benefits decisions should be rational but, in fact, they’re not,” said Parmenter, adding, “It’s not that people are stupid; it’s that we have too many decisions to make.“
Nudging better behaviours
Part of the challenge is that 95% of the decisions we make are automatic and unconscious, rather than reflective, he noted. Yet, when it comes to health and wellness, employers need their employees to make reflective decisions.
That’s where choice architecture comes in. It’s designed to “nudge” people to make better decisions, develop new habits—and, ultimately, create intrinsic motivation, explained Parmenter. “True behaviour change only happens when you act out of your core beliefs and your meaning and purpose in life.”
When people have to make complicated decisions, they rely on context, cues and habits to make these decisions easier, he said. In particular, the decision-making process hinges on two principles:
- heuristics – using aids to learn, discover or problem-solve by experience, especially by trial and error; and
- bias – exhibiting prejudice in favour of or against one thing, person or group compared with another.
Looking specifically at cognitive biases, they fall broadly within three categories, said Parmenter: what feels easy, what feels right and what feels good.
What feels easy
Status quo bias is the tendency to stick with the current state of affairs even when there’s a better option. To take advantage of our natural tendency toward inertia, Parmenter suggests employers automatically enroll employees in the benefits plan and then make them actively opt out.
Another important bias is framing bias: the tendency to draw conclusions based on the way something appears rather than the reality. For example, a $50 iTunes gift card seems like a great gift…but a $50 gift card for Tiffany? Not so much—even though they have the same financial value.
“How we frame things makes a huge difference,” he added.
What feels good
In particular, Parmenter talked about the endowment effect and loss aversion. People assign more value to things they own or perceive they own; therefore, we tend to place more value on expected losses than expected gains, he explained.
For this reason, Parmenter recommends changing the way employers design wellness incentives. Rather than giving employees a financial incentive for participating in a wellness activity, he suggests giving everyone the financial incentive upfront and then taking it away from the non-participants.
People are also subject to low-probability/high return bias—the same bias that drives people to buy lottery tickets when the prize money goes up, Parmenter explained. Essentially, we place a disproportionate value on the potential reward and discount the low probability of actually obtaining it.
To use this bias to their advantage, Parmenter suggests employers use one big grand prize as an incentive rather than a lot of smaller ones.
And choose “fun” rewards rather than those that are “good for you”, he added. “You’ll get more participation from a red Corvette than you will with tuition for your children, even if the value is the same.”
What feels right
Social identity theory is the notion that we all want to fit into a group, explained Parmenter, noting that people actively conform to group norms. Since they also tend to exhibit in-group favouritism, activities such as team competitions can help motivate participation in wellness activities, he added.
The bias toward reciprocation can be another powerful tool to motivate behaviour. For example, he noted, a study found waiters or waitresses who left a mint and a personal note along with the bill actually got higher tips.
“In every culture in the world—even in the most remote places—this principle is found to be true,” he said. “And this has a powerful impact when designing benefits.”
Plus, due to memory distortion, we tend to remember good things better than bad things and recent experiences better than what happened a long time ago. So “leave people on a high note,” he added.