In this blogpost, I want to shine the Behavioural Design lens on economic thinking. I believe that how governments deal with the crisis has got everything to do with Behavioural Design.
The choices they make all have one intended goal: To positively influence the behaviour of the players in the economic ecosystem: citizen, entrepreneurs, investors, etc. Their interventions matter a lot because if they are based on wrong thinking about how incentives shape behaviour, they will result in worsening the crisis.
The economy is the sum of our beliefs of what it is
The health of an economy is nothing more or less than the collective believe we have about the future. If we are collectively convinced that things will go wrong, we will together cause the economy to contract. If you use this frame to look at the behaviour of the players in the marketplace, then the first thing you’ll notice is that the stock markets seem to be drunk with optimism again. Investors bet massively on a belief in a sharp recovery.
However, I’m not sure if we can use this signal for the real economy. Financial markets and the real economy don’t seem to have much in common these days. The stock exchange reflects more a collective belief in which companies will dominate markets in the future, and these dominating firm don’t correlate well with employment, prosperity and tax-income for the countries that host them.
‘Austerity is the dumbest idea ever.’
In the past, I have written about the Scottish Political Economy professor Mark Blyth, the author of the book ‘Austerity: The History of a Dangerous Idea’ (and the man behind the picture above). This lecture was the first lecture that made me understand fiscal policy-design and macro-economics (bonus: he’s a great speaker).
He makes the case that austerity is the dumbest idea ever. An idea that is gaining new momentum now since economy professor Stephanie Kelton published The Deficit Myth . The central idea that both economists propagate is that countries are not households. Countries can print money and can profit from negative interest rates, which means they get paid for lending. In other words: Countries that spend during crises, recover much faster. I wrote about this before in the blog “When accounts rule the country: On irrationality and politics“.
If this is true, then we can be hopeful that we can rebound soon, given the fact that the EU, as well as national governments, are pumping nearly unlimited amounts of capital into the economy. The question remains if this money eventually trickles down to citizens, employees, and SME’s, or if they end up filling the unlimited pockets of multinationals, and their investors. If you have inspiring sources on this topic, please share them with me.
The stimulus package debate, as seen through the lens of behavioural design
Why am I writing a newsletter on economic thinking? Because I think the choices governments are making to save the economy have every to do with behavioural design and behavioural economics.
First of all, a lot of the debates around fiscal policy seem to be completely irrational, something I have written about in the past. The fact that the Nordic countries keep insisting that the southern European countries need to feel the pain for their sinful spending behaviour in the past hasn’t got anything to do with solid economic thinking, but everything with moralism.
When you read Mark Blyth, a thriving economy is an economy where people have money to spend. A contracting economy follows from people who are afraid to spend. European Countries so far have been doing a great job to make sure that people can keep on spending. They seem to have learned the lesson from the financial crash of 2008. This is possibly an excellent indicator for a fast rebound. He summarizes this argument very eloquently in this 5-minute video.
Third, every intervention in the economy is a behavioural intervention. The way governments design their funds will trigger intended and unintended behaviours. Quite often, the money is not being used by those who could benefit the most from it. Quite commonly, the money is being used by ‘smart’ investors who use cheap capital to fill the war funds of technological disrupters so they can conquer the market and kill all competition. And the reason why they love these companies is that digital companies, in the end, deliver a far higher ROI, because the cost of reproduction of digital products is near zero and they rely far less on physical labour. In other words: If the rules around the abundance of cheap capital are not designed with a greedy capitalist in mind, they will only make things worse. For more on this topic: see this blog I wrote last year on The Behavioural Design of The Economy, on incentives and rewards.
I hope this gives you a new view on how to think bout these abstract concepts like Eurobonds or recovery funds. In the end, they are designed to shape the behaviour of players in the economy. If you understand how they shape behaviour, you can start thinking about the question if they are designed well or if they don’t make any sense at all.
If you want to learn more about how influence works, you might want to consider our Behavioural Design Academy masterclass. Or organize an in-company program or workshop for your team. In our masterclass we teach the Behavioural Design Method, and the Influence Framework. Two powerful frames for behavioural change.
You can also hire SUE to help you to bring an innovative perspective or your product, service or marketing in a Behavioural Design Sprint. You can download the brochure here, or subscribe to Behavioural Design Digest at the bottom of this page. This is our weekly newsletter in which we deconstruct how influence works in work, life and society.
Or maybe, you’re just curious about SUE | Behavioural Design. Here’s where you can read our backstory.
The Covid-19 crisis requires behavioural change
at an unprecedented scale
Abandoned Zeedijk street in Amsterdam during the COVID-19 outbreak.
A tiny creature with massive powers
One tiny microscopic creature did something to humanity what no other animal was capable of doing:
It stopped us.
Everything we thought about the present and the future has been shattered to pieces in just a matter of three weeks.
The future turns out not to be as positive as we anticipated.
The present turned out much more fragile than we assumed.
It took a tiny little virus to evaporate the profits of the last ten years in a matter of days. It squeezed out a sizable chunk of your pension. It might kill your job, and it might turn the debts you took in optimistic times, into serious liabilities.
The Covid-19 crisis requires behavioural change at an unprecedented scale. In this blog we explore the wicked design challenges for behavioural change.
Make Behavioural Design work for you
Join our virtual Behavioural Design Academy from home and see how you can effectively change behaviour and habits to cope with this crisis.
This virus has thrown us abruptly into a forced behavioural change experiment, and we are struggling to adapt:
We need to figure out how to stay in quarantaine without making each other’s life miserable.
We have to find a way to be productive and creative while isolated from our teams.
We need to stay in mental and physical shape.
We’ll have to use our mental strength to avoid anxiety and depression and to be grateful for what we have.
And we’re going to get back in financial shape after this crisis. Surviving this one will provide us with valuable lessons for the future.
A Classic Wicked Behavioural Design Problem
If this is not a wicked Behavioural Design problem, then what is?
(Ok except for the climate crisis, which, by the way, is getting temporary relief from our ferocious efforts to finance our progress by pumping the CO2-byproduct of that progress into the atmosphere and the oceans, whereby we turn it into a problem the future generation will need to fix).
This forced social distancing experiment challenges us to change our beliefs and attitudes, change our behaviours and build new habits.
This crisis has all the characteristics of the ultimate behavioural design challenge:
It involves new behaviour.
We will need to break existing habits,
The behaviour we want to design will probably pay off in the far future,
While at the same time, we need to to be disciplined in the present.
In other words: although most people will want behavioural change, their habits, their context and their relative inability to resist instant gratification, will make it extremely difficult to succeed.
We then need to find ways to keep them engaged and to help them to build and sustain new habits.
We’ll need to leverage our psychological understanding of behaviour to help people to build the habits that:
keep them in a positive flow
get them to experience deep work
harvest the creative, social and intellectual capital of their team
be creative and productive
get them to experience gratitude, joy and wellbeing
contribute positively to the life of others
get them to learn new skills
trigger a curious and optimistic mindset
get them to grow as a person
get them to try new ideas and embrace uncertainty
Change behaviour and the rest will follow
This crisis forces us to practice virtue in the face of gigantic obstacles.
It provides us with a unique opportunity to practice calm, to inspire others with optimism and re-program our brain away from anxiety into fascination and desire for action.
All these positive outcomes can only follow from changing our behaviour first. We firmly believe that we will find calm, experience joy, get creative and feel the power of great collaboration, only if we act first. Our emotions and experience follow from our behaviour. Only if we can get ourselves to commit to new habits; only if we can prime ourselves into thinking differently; only if we infatuate others with our energy and excitement, we will be able to come stronger out of this crisis.
In the upcoming weeks, you’ll hear much more from us. But we also urge you to apply the behavioural design method to influence the minds and shape the behaviour of yourself, your beloved ones and your colleagues. Use the SUE | Influence framework to analyze behaviour, use the BJ Fogg method to come up with interventions for behavioural change, prototype, test and adapt.
There’s so much good work to do.
Let’s get it on.
The team at SUE | Behavioural Design
More blogs on Designing Citizen Behaviour
In this series we apply behavioural design thinking on how societies shape the behaviour of citizen
We are now 8 days further into this crisis and the world has gone into various forms of lockdown. There’s a big debate on whether this is the right strategy. It could be the worst of two worlds: We will harm the economy and when shit will hit the fan, we’ll be even more vulnerable. Nassim Taleb takes – as always – a radically different approach. He argues in this paper that lockdown could literarily wipe the virus out in 2 or 3 months. Hopeful.
I have added a couple of nuances at the end of this blog on austerity.
As I’m writing this piece (March 10th 2020), the virus is raging through the economy. Stock markets are heading towards catastrophic losses, and governments are forced to take draconic measures. The virus is going to hit the economy hard. How do we make sense of this all? And what’s the best way to respond as businesses and as a society? The most useful mental models that come to mind are the concepts of ‘Black Swan Events’ and ‘Anti-fragility’ by Nassim Nicolas Taleb.
Nicolas Nassim Taleb
Covid-19 s a classic Black Swan Event
In The Black Swan, Nassim Nicolas Taleb argues that we humans assume that the world is a fairly predictable place. We believe the stock market will keep on growing. We act upon the belief that the world will keep on evolving towards more prosperity. We assume interests will remain so low; you’d be crazy not to borrow. We keep pumping CO2 into the atmosphere because we believe that nature will keep on absorbing most of the damage we inflict upon her. Taleb argues that we all think we live in Normalistan, and we make all of our decision based on a firm believe in Normalistan. This conviction works very well,… until it doesn’t.
Taleb argues that Normalistan is an Illusion. Once in a while, an extreme and unexpected event happens that turns everything on its head. The classic example is a crash of the stock market. In 2008 everyone was drunk with optimism about the ludicrous profits they could make on the stock market and in the housing market, until the day that Lehman fell.
Taleb calls these events’ Black Swan Events’: Highly improbalistic events that instantly reshuffle everything we thought we knew about the world. People always thought all swans are white until one-day explorers brought a black swan from Australia. This urged us to revise our understanding of the world instantly. Taleb himself made a fortune as a trader betting against ‘black swan events’. He took insurance against the crash of stocks, waited for years until the stock market crashed and got incredibly rich. For a similar story; Watch the Big Short on Netflix.
The Big Short – On Netflix
How to deal with black swans: Anti-fragilty
After writing the Black Swan, Taleb followed up with the book ‘Antifragile: Things that Gain from Disorder‘, in which he came up with strategies to deal with Black Swan Events. He argues that most systems cannot cope very well with disorder or unexpected events. Big corporations, for instance, are very robust, which works very well in times of economic booms. However, robustness becomes highly problematic in times of crisis or the face of technological disruption and rapid market transformation. A big corporation is like a tanker, that has a significant advantage in calm, open waters, but is hopeless when it needs to manoeuvre fast and agile.
The opposite of a fragile system is a system that gets stronger from disorder. For instance: Netflix runs the Chaos Monkey on their servers. The chaos monkey is a script that attacks servers or groups of servers. Netflix inflicts constant unexpected attacks upon itself to get stronger when it has to deal with attacks from the outside world. Taleb calls these systems anti-fragile.
Antifragile systems benefit from disorder, obstacles, unexpected events, or change. Silicon Valley, for instance, is very anti-fragile, because it counts on lots of startups to fail because they expect a tiny group of startups to become massively successful. By allowing lots of failure to happen, it increases its chances of stumbling upon success.
Antifragile by Nassim Taleb
Covid-19 is a Black Swan Event
This brings me to the Corona virus. This is a classic black swan event. Out of nowhere, it suddenly threatens the global economy, the unstoppable rise of China, the American elections, etc. Trillions of dollars of values already evaporated in the course of days. And we’re just getting started.
The virus is ruthless in bringing to the surface which systems are anti-fragile and which ones are not. Let’s look at some observations of how obviously fragile our economy is:
The world economy, with its just-in-time delivery of goods and services, is very vulnerable. All industries that depend on Chinese production capacity are now screwed.
The obsession with ferocious growth through enormous amounts of corporate debt, suddenly becomes highly problematic, now that investors want to get out of high-risk value papers as soon as possible. Debt-filled companies don’t have reserves for dealing with crises.
Most health care systems in the world are utterly unprepared for a pandemonium. In our collective free-market obsessions with cutting away redundancies, we optimized to cope with Normalistan. If the spreading of the virus continues as it does today, the US will run out of hospital beds within two months.
Lot’s of SME’s are rapidly getting into trouble: Orders get cancelled, and incomes drop sharply, while at the same time it’s not that easy to cut costs quickly. You can’t fire your staff with a snap of your fingers.
The travel industry is not anti-fragile. Airlines are getting big blows. The first airline Flybe has already gone bankrupt. Airline margins are very low, competition is killing, and the business model can only function through continuous growth.
The efficiency maffia holds a firm grip on the economy. And they usually get away with it, until they get surprised by a black swan event. They collectively shout in despair that they had never seen in coming.
The problem is: There are always going to be Black Swan Events. You never know when, but they’ll happen. We have to design our systems – society, work, our personal lives,… – with the expectation of black swan events at heart.
Anti-fragility in the face of Corona
What do anti-fragile systems look like? Who will get stronger from this virus-induced economic recession in the making? Here are a couple of principles
The ability to change course fast: anti-fragile systems benefit from a capability to coordinate for rapid change. Singapore got much credit for being the world standard for how to deal with the virus. The government has set up a massive fever-surveillance system, so nearly nobody can remain under the radar for too long (and infect others). Their capability for massive mobilization makes them slightly less fragile.
Companies that have no debts and healthy cash reserves: In times of optimism, it’s very tempting to listen to your accountant and pay dividends. I’m glad we nearly always politely listen to our accountant and then do the exact opposite. We try to protect ourselves against our own optimism bias. We expect bad times to happen and plan for it.
A diversified product offering: Airlines are very vulnerable because, in the case of a pandemonium, people will stop flying for business. But they’ll still need to talk to the business partner they were going to visit in the first place. If airlines would have invested in high quality video conferencing, they might have helped a lot of companies and event organizers to solve a huge problem. The Job-to-be-done of business traveling is not the journey, but to facilitate high-value meetings. It’s not because people stop traveling, that their underlying motivation for traveling has disappeared. For more on Job-to-be-Done: See our post on The Influence Framework.
A Culture of Experimentation: This is a unique moment in time to experiment with video conferencing and collaboration software. Companies that are already used to working from home and video conferencing have an advantage. We are now rapidly experimenting with software tor virtual classrooms and for virtual sprints. If people can’t travel, then we’ll have to redesign our learning experience within a couple of weeks.
Speed up innovation: If your staff now suddenly has time on their hand, then use this opportunity to invest in your content, brand, reputation. Never waste a good crisis, because it allows you to invest in the things you usually don’t have the time for while the economy was going strong.
Take a lot of small risks, instead of one big risk. When the world becomes highly unknown, embrace fast experimentation. Prototype ideas, run pilots and try to get promising signals as soon as possible.
I don’t know how this crisis will evolve, and of course, we didn’t see this one coming. And to be honest, there’s no way to tell if this will play out well. We have to embrace it and practice anti-fragility.
On several occasions I have been writing against fiscal austerity. In my argument, I followed the classic Keynsian argument that governments should do the exact opposite of what people need to do when in debt: spend more. This argument has been defended by Nobel Prize Laureates Joseph Stiglitz and Paul Krugman and has been argued for, both with strong data-support and with a highly entertaining Scottish accent by Mark Blyth, the author of the book “Against Austerity”. (must watch lecture).
This is what Economics Professor Tyler Cowen writes on his blog (which really is the essential go-to place during their crisis):
Of course the content of the spending matters a great deal, but this is in principle the right thing to do. But here is the catch: out on social media, and in the old days of the blogosphere, there was so much Merkel hatred: “the austerity queen who killed thousands,” etc. But now she has been vindicated. We all can agree that a government should (on average) run surpluses in good times and deficits in bad times. Well…2011-2012…those were the good times. Yikes.
Merkel goes up in status with this, big time. And of course it is no surprise that a bunch of Germans would have a better sense of what the bad times really can look like.
Nassim Taleb insists that this is NOT a black swan. For the simple reason that the outbreak of a global pandemic was a highly probable and predictable event. We were warned for it by leading scientists for decades, and we had multiple occasions where we could have tested our capacity to deal with it (e.g. the SARS-outbreak). He is therefore very harsh on companies that decided to use the abundant availability of cheap capital in the last decade to buy back their own stocks, which would drive up the value, that in turn lead to bonuses dividends for management and shareholders. Taleb on Twitter:
“Explain to me why we should spent taxpayer money to bailout companies (airlines) who spent their cash buying their own stock so the CEO gets optionality, instead of having a crisis buffer. We should bail out individuals based on needs, not corporations”.
BTW: this is the theme of his latest book, called “Skin in the Game”, in which he argues that a lot of terrible decision making could easily be avoided if the ones who took the decision can be both awarded and punished for their decisions. This crisis might teach shareholders something about expecting more skin in the game from the management of the companies they invest in.
It would be the worst Behavioural Design if we as SUE wouldn’t come up with interventions to help contain the Covid-19 outbreak. Starting with how we manage things at SUE for all our clients and participants. And not to mention for our team. At our offices we have already taken all the measures that are advised:
We wash our hands regularly
Most of us are working virtually right now
We have special hygiene soaps in the offices
We have stopped shaking and hugging (and we are big on hugs)
But we are taking things a step further.
Make Behavioural Design work for you
Join our virtual Behavioural Design Academy and see how you can effectively change behaviour and habits to cope with this crisis.
Behavioural Design might be needed more than ever right now. In these times of uncertainty, we believe our clients and participants need all the help they can get not to come to a standstill. How can you make sure your clients are still coming to you? How can you make sure you and your team can still be a high-performance team when forced to work virtually? How can you install team habits? How can you better understand the psychology from clients, citizens and employees so you can help them make better decisions? How can we design behaviour to help slow the spreading of the virus down?
You might have been forced to stop travelling, but that doesn’t mean you want progress to stop or even worse to come to a standstill.
More know-how on Behavioural Design can help prevent a standstill or even help you acquire know-how to outsmart the competition (and virus). That’s why we will continue sprinting and training. SUE is going virtual as long as the outbreak isn’t contained. And SUE will start making free content and training to help organisations and people to install the new behaviours needed in these times. Just keep an eye on our newsletter that you can join on our homepage and this blog.
The reason for going virtual
After reading up on trustworthy sources on the Covid-19 outbreak, one of the most important conclusions is that we can help slow-down and contain the outbreak if we make sure a little people as possible come into contact with each other. We found this interesting graph that shows it in one clear picture:
That’s why we have decided to go fully digital at SUE. We feel it is our responsibility to our clients, participants and employees to protect them as much as we possibly can. By not bringing them together in one room. We have set-up a virtual training and sprint room, and we have all technology in place to visually collaborate from a distance.
Book a virtual Behavioural Design Sprint
Book a Behavioural Design sprint to prevent a standstill and have Behavioural Design help you turn this crisis into progress.
Maybe we can make the saying ‘never waste a good crisis’ true for every one of us. We will develop, prototype and improve new working habits.
Let’s turn this forced virtual working into a blessing. If we can make this work, we can also keep it up when this Corona crisis is over.
It could open possibilities for employees to have more flexibility as working from home reduces their travel time. It can open up new ways of wokring that helps parents spend more time with their kids. It can make teams surge as this time can help them experiment with high-performance team habits. It can maybe help this planet as breaking the habits to jump on planes, to commute to work by car or shop ’till we drop is replaced by more positive habits. It will be an interesting journey, and yes, we will experience setbacks. But this crisis will force us to learn super quickly to build better behaviours. Necessity is the mother of all progress. In the meantime,
We will take you along on our journey to help create better habits.
Both in staying on top of our game in work performance, but also in finding out how to make sure you still feel genuinely connected when not being in the same space. We will share this in our newsletter and on this blog. Interesting times and we hope you will join us on this ride. That is both necessary, but also extremely intriguing.
Our clients and participants
If you have booked a sprint with us, we will contact you personally to give you all instructions how to participate in the virtual sprint to help you come up with solutions to make Behavioural Design work for you. Do you want to book a new virtual sprint, as you also might feel Behavioural Design is the missing layer to dealing with this crisis? Please contact Susan; she can help you out with everything.
If you have enrolled in our Academy, we have sent you an email with the latest update on how you can access the virtual training will take place. Please also check your spam folder to find it. Do you want to join the Academy? Just enrol on the Academy page, and you’ll get all the information on how to join the virtual training room. The dates mentioned on the website are still the dates of the training.