Picture this: your organisation has rolled out a shiny new initiative aimed at improving employee engagement. The strategy is sound, the resources are in place, and yet… nothing much changes. Employees nod along in meetings but carry on as usual. What’s missing?

The answer might lie in an unexpected place: Behavioural Economics. Traditionally associated with consumer choices and financial markets, behavioural economics offers fascinating insights into what truly drives human behaviour — and how you can use these insights to boost engagement and performance within your organisation.

Let’s dive into the latest thinking in behavioural economics and explore how it can help you create a workplace where employees aren’t just showing up, but are motivated, engaged, and performing at their best.

What is Behavioural Economics?

Behavioural economics combines psychology and economics to understand why people make the decisions they do — especially when they deviate from what we’d expect if they were perfectly rational. It’s based on the premise that human beings aren’t always logical creatures; our decisions are influenced by emotions, biases, social norms, and other psychological factors.

This field challenges the traditional assumption that we make choices purely based on rational self-interest. Instead, it acknowledges that we're often swayed by cognitive shortcuts (heuristics), habits, and the environment around us.

In the context of the workplace, this means that employees might not always act in ways that align with their best interests — or with the organisation's goals. But by understanding the drivers behind these decisions, leaders can create environments and incentives that foster the behaviours they want to see.

The Latest Ideas in Behavioural Economics

Here are some of the most exciting ideas from behavioural economics that can be applied to the workplace:

1. The Power of Nudge Theory

Nudge Theory is all about making small changes to the environment or "choice architecture" that can lead to big changes in behaviour. A "nudge" doesn’t force people to make a particular decision; instead, it subtly encourages them to make the best choice without restricting their freedom.

Latest Thinking: Recent studies show that nudges are particularly effective when they tap into social norms or the desire for social approval. For example, a nudge that shows employees how their peers are actively participating in a learning initiative can significantly increase engagement rates.

How to Use It: If you want to increase participation in a new training programme, consider sending out regular updates highlighting the percentage of employees who have already completed the course. You could also showcase testimonials from well-respected team members who have benefited from the programme.

2. Loss Aversion: The Fear of Missing Out

One of the most well-documented principles in behavioural economics is loss aversion — the idea that people prefer to avoid losses rather than acquire equivalent gains. Simply put, the pain of losing £100 is far greater than the joy of gaining £100.

Latest Thinking: Organisations are now using loss aversion to motivate employees by framing incentives around what they stand to lose if they don’t participate or perform. For example, a bonus scheme might be designed so that employees start the year with a certain bonus "pot" that decreases if specific targets aren't met, rather than one that gradually builds up.

How to Use It: Instead of offering an end-of-year bonus, try giving employees their full bonus upfront, but with conditions attached. If targets aren’t met, a portion of the bonus is withdrawn. This approach taps into the natural human desire to avoid losses and can drive higher performance.

3. Hyperbolic Discounting: Making the Immediate Irresistible

Humans have a tendency to prioritise immediate rewards over long-term gains — a phenomenon known as hyperbolic discounting. This explains why we might choose a doughnut now rather than a salad, despite our long-term goal to be healthier.

Latest Thinking: Behavioural economists suggest breaking down long-term goals into smaller, more immediate rewards to counteract this tendency. This technique makes it easier for people to visualise progress and feel a sense of accomplishment.

How to Use It: Instead of setting annual performance goals, break them down into quarterly or monthly targets with smaller, immediate rewards. This could be something as simple as a public recognition, a small gift card, or an extra day off. The key is to provide frequent feedback and immediate recognition to keep motivation high.

4. The IKEA Effect: Valuing What You Create

The IKEA Effect describes the phenomenon where people place higher value on things they have had a hand in creating. This is why that wobbly chair you assembled yourself feels more precious than a professionally made one.

Latest Thinking: The latest research suggests that involving employees in the decision-making process can significantly increase their engagement and commitment to the outcome.

How to Use It: Give your team the opportunity to co-create solutions. For instance, involve them in designing a new employee training programme or let them have a say in shaping their own development plans. When people feel ownership over an idea or project, they’re more likely to be invested in its success.

5. The Endowment Effect: Owning the Change

Closely related to the IKEA Effect, the Endowment Effect suggests that people value things more highly simply because they own them. This can be leveraged to drive behavioural change by creating a sense of ownership over new processes or tools.

Latest Thinking: The most effective change management strategies now involve making employees feel like they are "owners" of the change, rather than passive recipients.

How to Use It: When rolling out new software or a new way of working, try to position employees as beta testers or early adopters who can shape the future of the tool or process. By making them feel like stakeholders rather than users, you increase the likelihood of a smooth adoption.

Applying Behavioural Economics to Drive Engagement

Let’s talk application. How can you start integrating these principles into your workplace today?

Design Nudges into Your Processes: Think about how you can make the desired behaviours the easiest or most appealing options. For example, set default calendar reminders for employees to take breaks or attend well-being sessions.

Frame Communications to Leverage Loss Aversion: Instead of saying, "Complete this training to gain new skills," try, "Don't miss out on the opportunity to upskill and stay competitive."

Break Down Big Goals into Bite-Sized Wins: Use micro-goals with immediate rewards to maintain momentum and engagement, especially for long-term initiatives.

Encourage Employee Ownership: Involve employees in shaping new initiatives, and seek their input on processes and changes. Make them feel like co-creators rather than mere participants.

Recognise and Celebrate Effort, Not Just Results: By rewarding the process (e.g., effort, creativity, collaboration), you reinforce the behaviours you want to see, rather than just the end outcomes.

Summary

Behavioural economics isn’t just about understanding why people make the decisions they do — it’s about strategically designing environments that encourage better choices. When applied thoughtfully, these principles can help you create a workplace where employees feel more engaged, motivated, and aligned with the organisation's goals.

So, whether you’re trying to boost engagement in a new learning programme, drive adoption of a new tool, or simply make work a more enjoyable place, behavioural economics offers a wealth of insights to help you get there.

Why leave it to chance when you can nudge, incentivise, and design your way to success? It’s time to harness the power of behavioural economics and make meaningful change happen!

What are your experiences of using Behavioural Econmics in the workplace? What are the nuggets we’ve missed? Drop us a comment and let us know. And if you’d like to find out more about how Popcorn can support you, please email us at hello@popcornlearning.agency