Behavioral PsychologyBusiness EconomicsChange Management

Behavioral Economics & How it Impacts Change Management

By November 20, 2018 No Comments

Behavioral Economics combines behavioral psychology with economic theories to develop more effective, human-centric management strategies. Behavioral psychology is the study of how people behave in response to their environment.  In economics, behavioral psychology can help us understand why customers buy some products and not others, how to motivate employees to save for retirement, and how to respond to changing group dynamics within an organization.

Because businesses are groups of humans, behavioral economics is directly applicable to management theory. By understanding insights from behavioral psychology regarding leadership, collaboration, and motivation, managers can better implement strategies for change within their teams as well as broadly across an organization.

Moreover, business management decisions are more effective when informed by business economics because they take into account evidence based conclusions about human psychology. For instance, a manager’s understanding of human behavior in the workplace will directly affect the planning and information gathering stage of any change management project. The metrics that managers use to gauge performance will also be more informative. Finally, the outcomes of any management decision will be more predictable and stable it is analyzed from a psychological perspective.

So what does all of this have to do with change management? Change Management, or CM for short, is the practices and approaches to managing an organization or team through the process of organizational change. By understanding how to use the insights from behavioral economics in business management, businesses can begin to formulate approaches to change management that take into account the psychological impacts of change both within teams as well as between departments across the organization. For instance, behavioral economics can help explain why adoption rates are lower than expected overall or why adoption rates vary across departments within an organization.

All businesses can benefit from integrating insights from behavioral economics into their management strategies because all businesses are groups of people. Your business will be more effective if it has a clearer understanding of the motivations that drive humans to behave in different ways. Behavioral economics is especially useful to businesses undergoing large scale change. At the same time, smaller changes will also be more effective when informed by behavioral economics even though the overall management strategy may not be.

Of course, it is not always easy to see where or how to implement management practices that draw from behavioral economics. But businesses that do not keep up with the evolving picture of best practices in management are likely to fall short of their goals for business growth and innovation and lose out to competition in the long run. Tools like PPC’s Change Strategy Package can cut down on the time it takes for organizations to implement and adopt change. Learn more about the Change Strategy Package at

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